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Getting to 2050 Pathways to Deep Reductions in GHG Emissions CFA Society Presentation October 25, 2011 San Francisco, CA Ren Orans, Managing Partner Energy and Environmental Economics, Inc. Agenda Climate Change-Why Should I Care? No Question we have a Monumental Task Ahead Achievable through Wedges? Electrification is Key! Duke Power Example 2 Energy and Environmental Economics, Inc. San Francisco-based consulting firm since 1989 Deep expertise in electricity sector Experienced in linking technical-economic analysis to policy decision-making and public process Skilled at placing near term energy choices in longterm, transformational perspective 3 The Climate Challenge Climate stabilization (at 450 ppm CO2e) requires global emissions to stop growing by 2015, and to fall 50 – 80% below 2000 levels by 2050 Reducing GHGs will mitigate climate change impacts, but temps will increase no matter what we do today Source: Intergovernmental Panel on Climate Change, Climate Change 2007: Synthesis Report Climate ChangeWhy Should I Care? Economic Costs- Costs between 1 and 4 percent of GDP in 2050 Investment in Mitigation-Requires huge investment in new Infrastructure. • Upfront investments are about 3 times economic costs which amounts to about $10 trillion over next 20 years. Adaptation-What is left over after mitigation, might be something on the order of $100 Billion per year. • This also introduces a tremendous financing opportunity to mitigate, account for and insure against residual adaptation costs. National GHG targets developing in the absence of an int’l framework Governing Body Source/Declaration Legally Greenhouse Gas Emissions binding? Reduction Target G8 G8 Hokkaido Toyako Summit No 50% below current levels by 2050 Australia Carbon Pollution Reduction Scheme No 60% below 2000 levels by 2050 European Union European Parliament Legislative Resolution, 17 December 2008 Yes 20% reduction from 1990 levels by 2020 (goal of 60% to 80% below 1990 levels by 2050 in developed countries) United Kingdom Climate Change Act of Yes 2008 80% below 1990 levels by 2050 United States Obama administration policy goal, various legislative proposals 80% reduction by 2050 Proposal only U.S. Federal Proposals Call for Deep Cuts in GHG Emissions by 2050 Source: Pew Center on Global Climate Change, www.pewclimate.org U.S. States with GHG Targets Example states – not full list Arizona 2000 levels by 2020 50% below 2000 by 2040 California 1990 levels by 2020 80% below 1990 by 2050 Colorado 20% below 2005 by 2020 80% below 2005 by 2050 RGGI states 10% below 1990 by 2020 Florida 2000 levels by 2017, 1990 levels by 2025, and 80% below 1990 levels by 2050 Hawaii 1990 levels by 2020 Minnesota 15% below 2005 by 2015 30% below 2005 by 2025 80% below 2005 by 2050 Oregon 10% below 1990 by 2020 75% below 1990 by 2050 Source: Pew Center on Global Climate Change, www.pewclimate.org California’s GHG Strategy AB 32: 1990 levels by 2020 • 80% of reductions to come from regulations • 33% RPS by 2020 • Energy efficiency • Combined heat and power • Light-duty vehicle emissions performance standards • Low-carbon fuel standard for vehicles • 20% of reductions to come from regional cap and trade • Western Climate Initiative Executive Order S-3-05: 80% below 1990 by 2050 California 2050 Study Key question • What does California need to do to meet the 2050 GHG reduction goal? Infrastructure modeling approach • Multi-sector, stock roll-over model • Integrated electricity grid dispatch algorithms • Use standard projections of CA population, economic growth • Consistent w/ AB32 Scoping Plan Independent study sponsored by Hydrogen Energy International (HEI) 10 California’s Big Step Forward Assembly Bill 32 700 Business as usual projection 600 Million metric tonnes CO2e Today 500 2020 Goal under AB32 400 Electricity 300 Transportation 200 100 Industry 2050 Goal Executive order 0 1990 1994 1998 2002 2006 2010 2014 2018 2022 2026 2030 2034 2038 2042 2046 2050 Greenhouse Gas Savings for 2050 Greenhouse Gas Reductions in California 900 Conservation & Behavior Change 800 Energy Efficiency: Transportation 700 Energy Efficiency: Buildings and Industrial PV Rooftops MMt CO2e 600 500 400 Low Carbon Biofuels 300 Electrification: Transportation 200 Low Carbon Generation 100 Mitigation of Non-Fuel/Non-CO2 GHGs 1990 2000 2010 2020 2030 2040 2050 Remaining CO2e Year Source: Energy and Environmental Economics, Inc 2009 Emissions Reductions by Source MMt CO2e 900 800 Non-Fuel/Non CO2 GHGs 700 Diesel & Other transport fuels 600 Gasoline 500 Fuel - Industrial & Agriculture 400 Fuel - Residential & Commercial 300 Electricity - Transportation 200 Electricity - Non-transport 100 0 1990 Baseline 2000 2010 2020 2030 2040 2050 Year 13 Types of Change Behavioral Change Technological Change 14 Conservation & Energy Efficiency Unprecedented levels of energy efficiency Transition to zero net energy homes by 2020 Extensive retrofits of existing buildings 20 18 Residential Homes (Millions) “Smart Growth” 10% reduction in vehicle miles traveled relative to baseline 16 New Homes 14 12 Retrofit Homes 10 8 Homes with Historic Energy Demand 6 4 2 1990 2000 2010 2020 2030 2040 2050 Year 15 Low-Carbon Biofuels Eliminate consumption of gasoline by 2050 replacing it with some mix of low-carbon electricity and low-carbon fuels Aggressive biofuel assumptions don’t meet all transportation energy needs – biofuels likely to become premium fuel California Biofuel Availability Billions of gallons 45 Conservation 40 Efficiency 35 Electrification BioJet Fuel 30 Biodiesel 25 Ethanol Jet Fuel 20 Diesel Gasoline 15 10 100% of California's biomass feedstock for ethanol plus 7% of US feedstocks (DOE EIA 2007) Feedstocks include Ag Residues, Grasses and Forest Trimmings 7% assumes a distribution proportional to fuel consumption across all 48 States Assumes 1.8 billion gallons per year of algal biodiesel and bio-jet fuel Sufficient to meet 25% of biodiesel and 10% of bio-jet fuel demand in 2050 compliant case 5 0 2008 2050 Baseline 2050 Compliant Case 16 Electrification & Electricity Demand Electricity demand could nearly double by 2050 Increase in demand driven by electric vehicles Electric Demand at the Generator (GWh) Nearly all electricity must be from low-carbon generation 700,000 600,000 Transportation 500,000 Petroleum & Agriculture 400,000 Industrial Commercial 300,000 Residential 200,000 Baseline 100,000 1990 2000 2010 2020 2030 2040 2050 Year 17 Electrification and Loads High levels of energy efficiency help to decrease demand and flatten the demand profile Off-peak electric vehicle “smart charging” & electrification will flatten load shape, increase overall demand & need for baseload generation 2050 Baseline Case “Peaky” demand in 2050 Baseline 2050 Compliant Case “Flat” load profile in 2050 Compliant case 18 Low-Carbon Generation 1. High Renewable Case 3. High CCS Case 2. High Nuclear Case 4. Blended Case 19 H ig h H C CS le s as e Sc e rio rio rio na na Sc e ce na ar io C Ca se en Sc ce rS d le a uc ew ab N ig h en ig h R H de re n se lin e ef e Bl en R Ba 2009 - 2050 Cumulative Capital Investment (Billion 2008$) Investments to decarbonize electricity are significant in all low-carbon cases $600 $500 $400 $300 $200 $100 $- 20 Generation Capacity in 2050 Gas CT 250 200 Geothermal Solar Thermal 150 Solar PV Wind 100 Nuclear Storage - 4 Hour 50 Gas w/ CCS Coal w/ CCS C ig h en R ig h Combined Cycle H ew ab uc N ig h H CS le r le a e as C d de Bl en Coal Hydro H R ef e re n ce C se lin e as e - Ba Nameplate Capacity (GW) Biomass 21 Technology Wish List Efficiency Zero net energy buildings Extensive building retrofits Electrification Batteries for electric vehicles Smart charging for electric vehicles Biofuels Zero carbon ethanol Zero carbon algal fuels Zero Carbon Gen Carbon capture and storage Large scale energy storage Nuclear waste storage 22 Retail Rates, Risk and Greenhouse Gas Reductions Example from Duke Energy Carolinas E3 Case Study Duke Energy Carolinas Duke Energy Carolinas is focused on coal and nuclear: 1. Energy efficiency and conservation 2. Transition away from coal power 3. Transition from natural gas power renewables 4. Electrification of fossil fuel uses 24 Source: Duke Energy Carolinas, 2010 Integrated Resource Plan Investment Decision Timeline Power plant investments made today have 20 – 40 year lifetime at minimum Only one to two investment cycles before 2050, when goal is to have a decarbonized energy system To what degree should utilities tolerate ratepayer risk of future emissions abatement costs? Solar Wind Nuclear Carbon capture & storage Duke Energy Carolinas Case Study Scenario 1. Business-asusual, no CO2 price 2. Business-asusual, w/ CO2 price 3. Coal retirement 4. Low risk electrification 5. High risk electrification Description Modeled roughly after Duke Carolinas 2010 Integrated Resource Plan, assumes no carbon abatement costs Same as #1, but includes moderate carbon abatement costs Same as #2, including CO2 cost, but coal is replaced with natural gas fired generation Same as #3, but assumes a high penetration of electric vehicles. New loads are served with new natural gas-fired generation. Scenario also assumes off-peak charging of electric vehicles. Electrification does not increase RPS compliance costs. Utility receives 100% of the GHG savings credits achieved in transportation sector from electric vehicles Same as #4, but assumes uncontrolled charging of electric vehicles. Scenario assumes electrification increases the cost of decarbonizing the utility generation portfolio to meet the RPS, and provides no utility credit for GHG savings achieved in transportation sector from electric vehicles 26 Duke Energy Carolinas Case Study E3 developed five scenarios for 2011 – 2030 Scenarios test variations in generation mix & vehicle electrification assumptions GWh 160,000 140,000 Purchases 120,000 Natural gas 100,000 Renewables 80,000 60,000 40,000 20,000 Hydro Coal Nuclear 0 27 Duke Energy Carolinas Case Study Assume retired coal is replaced with natural gas Assume new electrification loads are met with natural gas 2030 Change in Capacity Relative to 2010 (MW) 25,000 20,000 15,000 10,000 5,000 Natural gas 0 Renewables -5,000 -10,000 Hydro Coal Nuclear 28 Scenario Results: Greenhouse Gas Emissions Net Utility Emissions (MMT CO2) 60 50 Emissions are nearly flat in BAU scenario 40 30 20 Emissions risk or benefit from electric vehicles High-risk Electrification Case BAU Case Coal Retirement Case Low-risk Electrification Case 10 2009 2012 2015 2018 2021 2024 2027 2030 29 Scenario Results: Retail Rate Impacts High-risk case: If utilities do not receive emissions savings credit from electric vehicle, rate impacts are high $0.12 High Risk Electrification BAU Real 2010 $/kWh Low Risk Electrification BAU Without Carbon Price $0.08 Low risk case: rate impacts are lower than BAU largely because of CO2 cost savings credited from vehicle electrification $0.04 $0.00 2009 2012 2015 2018 2021 2024 2027 2030 30 Ratepayer Risk & Electrification Electrification & natural gas pathway can be: • Lower cost for customers; • Lower risk (for ratepayers and/or shareholders); and • Lower emissions than BAU coal and nukes pathway. Done wrong, electrification represents an emissions and cost risk to utilities Electrification is unlikely to achieve high penetrations without concerted policy efforts and support of electric utilities • Current federal incentives for EVs unlikely encourage the market transformation and breakthroughs that are needed 31 Summary of Challenges and Opportunities GHG reductions pose a substantial financing challenge • Initially mitigation in both power, buildings and transportation sectors Utilities and larger customers should account for and possibly hedge against emissions abatement risk and cost • Similar to sinking fund for disposal of nuclear waste • Lack of policy does not translate to zero future costs Electrification is key to mitigation challenge 32 Thank You Ren Orans Energy and Environmental Economics, Inc. 101 Montgomery Street, Suite 1600 San Francisco, CA 94104 (415) 391-5100 [email protected] Presentation Study Available at: http://ethree.com/documents/CFA_SocietySF/E3_2050_25Oct11.ppt