Department of Energy

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Role of Integrated Assessment Modeling in CCTP Analysis “Beyond the Strategic Plan”

Graham M. PughSenior Policy Analyst

Climate Change Technology ProgramMay 28, 2008

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Climate Change Technology Program

Formed in 2002 to coordinate and prioritize Federal climate change-related technology RDD&D:

≈$4 billion/year;10 R&D agencies participate.

CCTP authorized in EPAct2005.CCTP Strategic Plan released September 20, 2006.100-year planning horizon and global perspective Identifies approaches and a series of next steps to implement the Plan.

www.climatetechnology.gov

3** CEQ, OSTP, and OMB also Participate

Climate Change Policy and Program Review by NSC, DPC, NEC

Office of the President

Chair: Secretary of Commerce* Vice-Chair: Secretary of Energy* Executive Director: OSTP Director

Secretary of State NEC Director Secretary of TransportationSecretary of Agriculture NASA Administrator Secretary of DefenseEPA Administrator Secretary of the Interior CEQ Chairman OMB Director Secretary of HHS NSF Director

Committee on Climate Change Science and Technology Integration

Chair: Deputy/Under Secretary of Energy*Vice-Chair: Deputy/Under Secretary of Commerce*

Executive Secretary: OSTP Associate Director for Science

Members DS/US Level:CEQ, DOD, DOI, DOS, DOT, EPA,

HHS, NASA, NEC, NSF, OMB, USDA

Interagency Working Group onClimate Change Science and Technology

Director: Assistant Secretary of CommerceFor Oceans and Atmosphere

Members:**DOC, DOD, DOE, DOI, DOS, DOT, EPA, HHS,

NASA, NSF, Smithsonian, USAID, USDA

Climate Change Science Program

Director: Senior OfficialU.S. Department of Energy

Members:**DOC, DOD, DOE, DOI, DOS, DOT, EPA, HHS,

NASA, NSF, USAID, USDA

Climate Change Technology Program

* Chair and Vice Chair of Committee and Working Group alternate annually.

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Long-Term Roadmaps -- From Today to the “End-State”

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2 Fundamental Questions: How much mitigation is necessary and when does it need to occur?

Concentration TrajectoriesEmission Trajectories

750ppm650ppm550ppm450ppm350ppm

750ppm650ppm550ppm450ppm350ppm

Emission and concentration trajectories based on current funding profile for technology investments

Potential carbon reductions based on proposed technology investments

Action period to influence longer-term outcomes

Peta

gram

(bill

ions

of m

etric

tons

) of C

arbo

n pe

r yea

r (Pg

C/y

r)

Relevant Planning Window

Relevant Planning Window

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Scenario Analysis and Integrated Assessment Modeling

CCTP uses scenario analysis based on integrated assessment modeling results

“Reference” and “advanced” technology depictions allow for study of scenarios in which certain technologies improve relative to othersProvides quantity and timing of GHG reductions, energy consumption, fuel mix, cost, etc. Scenarios allow CCTP to quantify benefits of advanced technologies in meeting climate goalsAnalysis shows cumulative costs of meeting climate change goals are much less with advanced technologies

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CCTP Role

Methodology to incorporate CCTP scenario approach into DOE budget process was developed, applied to FY09 budgetCurrent efforts are focused of the use of scenarios in transition planning in preparation for a new administration

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GDP Losses in CCTP Scenarios

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2000 2020 2040 2060 2080 2100

Percent

450ALL

450BSS

450CLC450NEB

450Ref

United States The World

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2000 2020 2040 2060 2080 2100

Percent

450ALL

450BSS

450CLC450NEB

450Ref

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CCTP Role in DOE Portfolio Planning

Last year DOE senior leadership asked CCTP to work with the CFO’s office to use climate change metrics to optimize the technology portfolioTypical agency budgeting process:

Given baseline funding, what benefits can be achieved?DOE technology program benefits focus on the “three Es”:

» Environmental, energy security, and economic benefits.Each program provides benefits, but results not integrated, can’t be summed to determine net benefits

CCTP emphasized new questions:For each program, given a climate change mitigation planning goal, what would you need to be successful?What benefits accrue to the entire, integrated portfolio?

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Portfolio Planning Methodology

GoalDevelop a portfolio that is hedged against risk, knowing that:

Not all technologies will succeed in making it to the market placeEven if they do succeed, their deployment may be limited by barriers

ApproachUse scenario analysis to define the most aggressive deployment trajectory for each technology

Use this as a program planning goalDevelop a ‘likelihood of success’ score that will discount benefits by factoring in barriers to deployment

Requires independent, expert judgment

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Current Status and WRI Role

Methodology developed, applied to FY09 budgetGenerally viewed as successful, but two main areas for improvement identified:

» Need for updated technology assumptions, scenarios» Need for independent ‘likelihood of success’ analysis

Ongoing work with PNNL/JGCRI on modeling and scenariosWRI engaged to provide independent feedback on market risk, leveraging internal expertise and external network

» Hopefully WRI gains insights from the scenarios and other background information from CCTP

Current effort is focused less on budget and more on transition planning

How to inform policymakers in a new administration of least cost technology paths to achieve GHG mitigation goals

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Elements of a Successful DOE Climate Portfolio

• Carbon Constraint: A price on CO2 or equivalent would significantly alter the commercial technology mix and reduce risk factors for success.

• Global Impact: The U.S. technology portfolio must be balanced against existing and future world needs for CO2 avoidance.

• Sequencing: U.S. Technology must be available on-time (20-30 years) to compete with emerging world demand for clean energy and to maximize deployment in emerging economies (e.g. China).

• Hedged: The technology portfolio chosen is inherently risky. Hedge against risk by setting ambitious goals for each technology, conservatively estimating the likelihood of success for each, and build the portfolio so risk- adjusted benefits meet the aggregate goal.

• Deployment: Partnership between industry and government are vital to bringing new technologies to market quickly – future policies should address appropriate Federal role of mitigating risk.

• Barriers: Significant range of policy needs to overcome barriers associated with each technology strand

Key Assumptions

• Future policies are likely to create carbon constraints: Generic carbon constraint emerges over time in DOE model, but model does not assume specific policies (e.g., carbon tax, cap-and- trade system, subsidies)

• Solutions must be global: Rest-of-World methodology assumes the world adopts advanced technologies with a time lag

• Expert judgment required at certain points in the process: Judgments well supported by research, analysis and modeling (e.g. non-benefit producing activities, such as research and grid, were logically inserted into investment sequence

• Near-term budget decisions (FY09) require long-term focus (50-100 year projections): Although the focus is on the near-term (FY09 budget + 5-year projection), analysis of the 50 to 100 year cumulative CO2 avoidance sums is required to appropriately assess benefits of the technology portfolios (e.g. coal and nuclear benefits accrue over very long time scales)

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Analysis Process Overview – What We Did

Maximum potential CO2 avoidance goals from PNNL model were allocated to technology “strands”.Potential CO2 avoidance benefits were allocated by risk-adjusting PNNL output by an appropriate discount factor.ROI calculated (expected U.S. CO2 benefit/cost, based on 5-year funding profile)Portfolio of strands built in order of highest ROI first.DOE investment portfolio optimized for global benefit and appropriate federal role.Candidate portfolios generated for different budget options.

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Starting Point: Detailed Portfolio Assessments (note: this is old data from last year’s template)

* In view of various hypothetical RD&D portfolios and other factors. Key: Very Likely (90-100%); Likely (60-90%); Maybe (40-60%); Unlikely (10-40%); Very Unlikely (0-10%)

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Decision Process: ROI Based Portfolio

Coal Solar Power

Wind Power

Bio-Fuels

Buildings

Nuclear Fission

Other Renewables

TransportationIndustry

Hydrogen

Electric Grid

Energy Storage

14 Technology Strands

Create List of Potential Investments

CO2 Reduction AllocationsFor 9 Technology Strands

Time

Cum

. CO

2

Coal With CCS

38 Budget Proposals (IPLs)2-3 Per Strand w/ CO2 Benefits

Develop Candidate Portfolios

Rate Budget ProposalsCO2 Reduction / Cost

Build PortfolioHighest Rated Proposals First

Identify Candidate PortfoliosAt CO2 Reduction Thresholds

Cost ($M)

Threshold 1

Threshold 2

Threshold 3

P1 P2 P3

Cum

CO

2

Cost ($M)

Threshold 1

Threshold 2

Threshold 3

P1 P2 P3

Cum

CO

2 Threshold 1

Threshold 2

Threshold 3

P1 P2 P3

Cum

CO

2

Best CaseFrom Model

Time

Cum

. CO

2

Coal With CCS

Best Case

Proposed

Risk- Adjusted

Discount CO2 BenefitsBased on Proposal Risk Factors

OMB• Energy Security (Barrels of

Petroleum)• Economic Benefits ($)NEC• Energy Pricing ($ per kW/h)Budget Constraints• One-Year (FY09)• Five-Year (FY09-14)

For Additional Key Criteria and Constraints

Review andAdjust Portfolios

Strategic Research

CO2 Reducers Enablers

Budget Proposal CO2 / $Coal With CCS Low (CL) XXXCoal With CCS Medium (CM) YYYCoal With CCS High (CH) ZZZNuclear Fission Low (NL) XXXNuclear Fission Medium (NM) YYYNuclear Fission High (NH) ZZZElectric Grid Low (EL) N/A (Enabler)Electric Grid Medium (EM) N/A (Enabler)Electric Grid High (EH) N/A (Enabler)

Activity 1 $XXX Activity 1 $XXX Activity 1 $XXXActivity 2 $XXX Activity 2 $XXX Activity 2 $XXXActivity 3 $XXX Activity 3 $XXX Activity 3 $XXX

Activity 4 $XXX Activity 4 $XXXActivity 5 $XXX Activity 5 $XXXActivity 6 $XXX Activity 6 $XXX

Activity 7 $XXXActivity 8 $XXX

XXX gT of CO2 YYY gT of CO2 ZZZ gT of CO2

Coal With CCSLow (CL) High (CH)Medium (CM)

Int’l. GNEP

Cost ($M)

Cum

CO

2 TM

CL

NL

WL

Enab

ler

Enab

ler

BLSM

IL

CM

Cost ($M)

Cum

CO

2 TM

CL

NL

WL

Enab

ler

Enab

ler

BLSM

IL

CM

Step 1 Step 2 Step 3 Step 4

Step 8Step 5 Step 6 Step 7

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Barriers Typology

6 Barrier Categories21 Barriers

~50 Detailed Barriers

Barriers are organized into six categories consistent with EPActBarriers are organized into six categories consistent with EPAct 2005 Title XVI.2005 Title XVI.

Cost Effectiveness

Fiscal Barriers

Regulatory Barriers

Statutory Barriers

Intellectual Property Barriers

Other Barriers

High Costs Unfavorable Fiscal

Unfavorable Regulations

Unfavorable Statutes

IP Transaction Costs

Incomplete and Imperfect

Information

Technical Risks

Fiscal Uncertainty

Regulatory Uncertainty

Statutory Uncertainty

Anti-competitive

Patent Practices

Infrastructure limitations

Market Risks

Weak International

Patent Protection

Industry Structure

External Benefits and

Costs

University, Industry,

Government Perceptions

Misplaced Incentives

Lack of Specialized Knowledge

Unfavorabletariffs

Policy Uncertainty

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Strand Technical Risk Market Risk Infrastructure

LimitationsPolicy/Regulatory

UncertaintyLimitations of

DOE RoleBAU $ Prob*

High $ Prob*

Coal w/CCS Geologic storage Cost, public acceptance Geologic storage sites, CO2 transport

Siting permits, indemnification

Nuclear Public acceptance Waste storage Loan guarantees

Electric Grid Energy storage, grid stability Transmission corridors Complex

governance

Transportation Consumer preference CAFE

Hydrogen Storage, low-C production Cost, public acceptance Production, delivery Safety, codes, standards

Bio-Based Fuels Cellulosic production Food vs. fuel Feed stock, fuel

transportation Tax credit, tariff

Wind Intermittency (limits max penetration) Grid access, stability Tax credits Mature technology

Industry High up-front cost, imperfect knowledge

Diverse industrial base

Buildings High up-front cost, misplaced incentives

Building codes, appliance standards

Diverse, segmented market

Geothermal Reservoir technology Source location, quality Grid access Applicability of production

tax credit

Solar Efficiency, thermal storage

Cost, misplaced incentives (PV homes)

Grid interconnection,supply chain

Utility acceptance, net metering, tax credits

Diverse, segmented market

*Likelihood of attaining CCTP goals, given two budget options; Key = Very Likely (90-100%); Likely (60-90%); Maybe (40-60%); Unlikely (10-40%); Very Unlikely (0-10%)

Risk Adjustments Impacting Likelihood of Success

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5-Year RD&D Investment, Technology Readiness Acceleration, and Expected U.S. Climate Change Benefits(CCTP Goals & Risk Factors; to 2100)

Transportation12

Industry6

Fossil5

Bio-Based Fuels

Solar3

Buildings3Wind

5

Nuclear5

Transportation12

Industry15

Fossil23

Buildings8

Wind6

Solar3

Bio-BasedFuels

3

Nuclear15

0

1

2

3

4

5

6

2000 2010 2020 2030 2040 2050 2060 2070

Technology Readiness (When Annual Deployment Reaches 10% of Peak Deployment)

U.S

. Cum

ulat

ive

Inve

stm

ent (

5-Y

ear B

udge

t Pla

n)

Area = Expected Benefits in GtC to 2100

Budget Option D1

Budget Option A

Focus U.S. Federal RD&D Investment on High Return Areas

Greatest impact on emissions

- Long-term large- scale investments

- High Risk

Near-term (5-15 years)

- Policy dependent

- Lower risk

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Rest of World

Fossil w/ CCS

143

Rest of World

Nuclear

75

Rest of World

Industry

61

Keep Eye on Potential Influence of Major EmittersU

.S. C

umul

ativ

e In

vest

men

t (5

Year

Bud

get P

lan)

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• RD&D/Technology: Achieving an emissions trajectory in the U.S. consistent with a worldwide trajectory of 450 to 550 ppm requires accelerated commercial use of low- carbon technologies

• Policy: RD&D and complementary market acceleration policies working together can move technologies toward the goal much quicker and reach the U.S. emission trajectory

• Strategy: Need both RD&D + supporting policy to succeed

– RD&D w/o policy drivers does not achieve sufficient commercial use

– Policies to hasten market penetration of new technologies w/o RD&D does not bring about transformation in energy systems

– Policies and RD&D lower the costs of compliance

CLIMATE BENEFITS

RD&D Policy

Staying on Course…

DOE’s Two-Pronged Strategy: RD&D + Policy