Event Presentation Slides - Resources for the Future

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Event Presentation Slides - Resources for the Future

RFF-NEPI Study

Briefing

Alan Krupnick

Senior Fellow and

Director of the Center for

Energy Economics and

Policy (CEEP)

NY Breakfast

September 16, 2010

1


Goals of Study

Consistently assess and score policies according to:

• CO 2 emissions reductions

• Reductions in oil use

• Welfare costs and cost-effectiveness

Point to promising policies for an overall energy

strategy for the U.S.


What’s Distinctive

• POLICIES (not technologies)

• COMPREHENSIVE – 35 (incl. 4 cross-cutting)

• CONSISTENCY (apples to apples) (using NEMS-

RFF model across all policies)

• WELFARE COSTS (not GDP or expenditures)

• TARGET REDUCTIONS FOR OIL AND CO 2

• BOUNDING ASSUMPTIONS FOR MARKET

FAILURE (no, partial, complete)

4


18

Oil Use (mmbd)

124.5

16 112 .2

CO 2 Emissions (GT)

12.4

2020 2030 2010-2030

Setting Targets

5


INDIVIDUAL POLICIES

OIL POLICIES

CO2 POLICIES

TRANSPORTATION

• Gasoline Tax

• CAFE

• Feebate

• Hybrid Subsidies

• LNG Trucks

mandate

ALL

• Oil Tax

POWER

• Renewable

Portfolio

Standards

• Clean Energy

Portfolio

Standards

• Nuclear Loan

Guarantees

CONSERVATION

• Building Codes

• Subsidies for

Geothermal heat

pumps

ALL

• Cap and

trade (C&T)

• Carbon Tax

Crosscutting combinations


Individual Oil Reduction Policy Ideas

• Power of Pricing: Taxes for reducing oil

• Affects all aspects of consumer and business decisions

• Recycle revenues for political palatability. But take care

Liquefied natural gas (LNG) heavy-duty trucks

• 18-wheelers travel 100,000 miles/yr @ 5 miles/gallon diesel

• LNG for range

• Operation in Port of Los Angeles

• ~ $70,000 more expensive investment

• Cheaper to operate on natural gas

• Still a net cost to society, even assuming complete market failure

• Infrastructure issue: hub and spoke system becoming more common,

but resale market could be problematic

• Safety Issues


Results

In almost all cases, subsidy has a strong

effect on hybrid penetration in the fleet….

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

2010 2020 2030 2020 2030 2020 2030

Core 1

Optimistic battery

costs

Optimistic

battery costs,

subsidies

Conventional Gasoline

Plug-in HEV10

Electric-Gasoline Hybrid

Plug-in HEV40


Results

But little effect on oil use and GHG emissions.

Reason is that CAFE is binding for the

manufacturers

When there are more hybrids purchased, it is easier to meet

CAFE

Is this a likely outcome?

• One view that CAFE would just change in response


Counting Costs of Pollution, Accidents

and Congestion

High Fuel

Tax

High

Feebate

CAFE

Net present value 2010-2045:

Welfare cost ($ billion) 53 45 42

Cost effectiveness: petroleum

($/bbl) 10 12 12

Cost effectiveness: CO2

($/metric ton) 22 31 35

NPV with external road costs:

Welfare cost ($ billion) -183 80 89

Cost effectiveness: petroleum

($/bbl) -35 22 26

Cost effectiveness: CO2

($/metric ton) -75 56 74

11


Individual CO 2 Policy Ideas

C&T/Carbon Tax is most effective and costeffective

Clean Energy Portfolio Standard (all but

coal) does relatively well if pricing is not an

option.

Subsidizing loans “better” than subsidizing

investment costs for energy efficient

investments

12


Conclusions

Getting even 2 mmbd reduction in oil

consumption is tough

Not a lot of good options beyond taxes

• Except heavy-duty truck policy

CEPS-ALL a reasonable CO 2 option if C&T is

dead.

Assumptions about market failure and

external costs really affect overall costs

14


Table 1. Crosscutting Combination Policies

1. Pure Pricing

Combines the phased oil tax with the

carbon tax.

2. Pricing + EE Measures

Combines the phased oil tax and carbon

tax with the residential building codes

provisions and the Pavley CAFE policy.

3. Regulatory Alternatives

Combines the LNG trucks policy, the

building codes provisions, the Pavley CAFE

policy, and the CEPS-All.

4. Blended Portfolio

Combines the phased oil tax, the high

feebate, the hybrid subsidy, the building

codes provisions, the GHP subsidy, and the

CEPS-All with a LNG trucks penetration of 5

percent per year

15


$117/person/yr

$48/person/yr

16


Concluding Messages

We can make progress now. Don’t need to wait

for technology advances.

From $48-$117 per person per year

vs. welfare costs of congestion per person:

$1,200 per DC commuter*

At $100/person per year, $30 billion per year

vs. welfare costs of congestion for U.S.: $80

billion*

* Texas Transportation Institute

17


Abundant Shale Gas Resources

Can shale gas lead to long-run price

stability?

Modeled replacing NEMS gas resource

estimates with those of Potential Gas

Committee

• Scenario 1: 269.3 tcf shale gas resources (EIA 2007)

• Scenario 2: 615.9 tcf shale gas resources (PGC 2009)

Can keep natural gas prices low—even

with big gains in natural gas demand

18


Scenario Analysis:

Supply and Demand, 2030

25%

Lower prices sustainable, even

with strong demand increases

19


Abundant Shale Gas Resources

Can natural gas be a bridge to low-carbon future?

• Without climate policy, abundant natural gas

increases energy use and CO 2 emissions

• With climate policy (C&T), abundant natural gas

increases natural gas use and electricity use falls

• Abundant natural gas moderately reduces cost of

reducing CO 2 emissions

‣ Emissions allowance price falls about 1 percent

‣ PV cost of carbon policy reduced about 1 percent ($1 billion)

A “narrow” (flimsy?) bridge to a low carbon future

20


Impact and Outreach

21


Responding to Stakeholder Requests

Request from Senate Energy Committee to model

additional feebates

Request from Senator Mark Begich’s office to

advise on including CEPS in upcoming legislation

Request from Natural Resources Defense Council

to model a utility sector-only C&T program

Exxon-Mobil, Cummins Engine, natural Gas

industry discussions about LNG trucks

22


Invited Presentations

Congressional testimony on oil and natural gas subsidies, November

2009

Presentation for Executive Offices at White House, December 2009

NCEP/industry Workshop (abundant shale gas), April 2010

RFF/NEPI Report Launch, including call with journalists and Senate

staff briefing , June 2010

EESI Panel on Capitol Hill, July 2010

World Congress presentation on natural gas, July 2010

National Petroleum Council presentation, August 2010

Columbia University Department of Economics, Sept. 2010

USAEE Conference presentations (3) on RFF/NEPI work, October 2010

Presentation on clean energy portfolio standards for the

Congressional Budget Office, October 2010

23


Upcoming and Proposed CEEP Work

$550,000 awarded for continued work on Toward a New National

Energy Policy, including responding to additional stakeholder

requests, developing more information on policy combinations and

alternatives to pricing, and communications

Short term natural gas price volatility being discussed with NCEP

Development of websites for Toward a New National Energy Policy

and CEEP

Proposed projects on improving efficiency in coal-fired electricity

generation; examining distributional effects of state portfolio

standards; uncertain shale gas availability; multi-country drivers of

renewables manufacturing and deployment.

A host of other potential project ideas on the energy-water nexus,

fuel economy in heavy-duty trucks, and estimating supply elasticities

for oil and natural gas.

24


Supplementary Slides

25


Electricity Prices and Quantities,

2030


Original gas

Enhanced gas

Original gas; C&T

Enhanced gas; C&T

50%

27


Obama’s Oil Spill Address

“…we can’t afford not to change how we produce and use

energy -– because the long-term costs to our economy,

our national security, and our environment are far

greater.…The one answer I will not settle for is the idea

that this challenge is somehow too big and too difficult to

meet…. Even if we don’t yet know precisely how we’re

going to get there. We know we’ll get there. ”

28


Results

Does this mean subsidies not a good idea?

• Depends on how difficult it will be to meet

CAFE without them

‣ If gas prices stay relatively low, it may be

difficult to sell vehicles to meet CAFE

‣ In our results, the subsidies reduce the

amount of non-compliance with CAFE


Hot “New” Ideas

Liquefied natural gas heavy-duty trucks

Loans rather than subsidies for energy

efficient investments

Clean Energy Portfolio Standard (all but

coal) does relatively well if pricing is not an

option.

Need oil taxes for reducing oil (absent LNG

trucks)

30


PDV Cost (billion $2007)

PDV Costs of Crosscutting Policy Combinations

600

500

400

300

200

100

0

Pure Pricing

Blended

Blended (without LNG Trucks)

Regulatory

Pure Pricing + EE

No Market

Failure Partial Market

Failure Complete

Market Failure

Regulatory (without LNG Trucks)

31


PDV Cost (billion $2007)

PDV Costs of Crosscutting Policy Combinations

600

500

400

300

200

100

0

Pure Pricing

Blended

Blended (without LNG Trucks)

Regulatory

Pure Pricing + EE

No Market

Failure Partial Market

Failure Complete

Market Failure

Regulatory (without LNG Trucks)

32


Implied Elasticity of Natural Gas

Scenarios

Supply

Implied Elasticity

of Domestic Supply*

Implied Elasticity

of Total Supply**

Low Gas—Scenarios 1 and 3 0.62 0.76

High Gas—Scenarios 2 and 4 0.92 0.99

High Gas—Scenarios 2 and 5 0.77 0.95

High Gas—Scenarios 2 and 6 1.41 1.58

High Gas—Scenarios 2 and 7 1.25 1.38

*Computed for 2030 with changes in U.S. natural gas production and

Henry Hub price of natural gas.

**Computed for 2030 with changes in total natural gas provided to U.S.

markets and Henry Hub price of natural gas.


Two policies are more expensive

than one (other things equal)

Total Cost (TC)

Policy A Policy B Policy (A+B)

TC (A+B)

Sum A+B

TC (A)

TC (B)

E (A)

E (B)

E (A+B)

34


Crosscutting Policy Combinations Minus the

Sum of Individual Policies, by Metric

Progress on oil target

Aggregate

reductions

Aggregate

reductions

PDV welfare

cost, No

Market

Failure

PDV welfare

cost, Partial

Market

Failure

PDV welfare

cost,

Complete

Market

Failure

Crosscutting policy

combinations

Reduction from 2007 (mmbd)

Oil consumption

(billion barrels)

CO 2 emissions

(mmtons CO 2 )

($2007,

billions)

($2007,

billions)

($2007,

billions)

in 2020 in 2030 to 2030 to 2030 to 2030 to 2030 to 2030

Pure Pricing –0.1 –0.4 –1.1 61.0 70.8 23.8 –23.2

Pure Pricing + EE Measures –0.1 –0.8 –2.2 –366.0 26.8 51.1 86.9

Regulatory Alternatives –0.1 –0.2 –0.7 –277.0 14.6 25.7 41.5

Blended Portfolio of

Policies –0.3 0.1 –1.1 –329.5 83.8 59.7 49.6

Regulatory Alternatives - no

LNG trucks –0.1 –0.2 –0.6 –277.0 5.1 6.5 16.6

Blended Portfolio of

Policies - no LNG trucks –0.4 0.1 –1.0 –329.0 120.9 127.8 135.2

35


Run out of

technologies

37


Light-duty vehicles in energy

policy –

Policies

Types of Policies modeled:

■ Fuel tax

■ Fuel-efficiency standards (CAFE)

■ Feebates (extension of gas-guzzler tax)

Some Policies not modeled:

■ Public transit

■ Smart growth

■ Natural gas – but see separate study


Light-duty vehicles in energy

policy –

Policies – Fuel Tax

Fuel tax increase modeled:

“High” – covers road externalities

2010: $1.27/gal

2030: $1.73/gal)

Includes gasoline, diesel, and E85 – as

used for light-duty vehicles


Light-duty vehicles in energy

policy –

Policies – CAFE

CAFE = Corporate average fuel efficiency:

Baseline already incorporates Obama’s “National Energy

Program”, coordinating CAFE and greenhouse-gas

standards


Light-duty vehicles in energy

policy –

Policies – CAFE

“Pavely CAFE” policy: mimics California standards,

further strengthened after 2020

Standard for new light-duty vehicle:

2016: 35 mi/gal (already in baseline)

2020: 40 mi/gal

2030: 52 mi/gal


Light-duty vehicles in energy

policy –

Policies – CAFE

“Pavely CAFE” policy: mimics California standards,

further strengthened after 2020

Standard for new light-duty vehicle:

2016: 35 mi/gal (already in baseline)

2020: 40 mi/gal

2030: 52 mi/gal

2030 standard turns out to be hard to meet with technologies assumed

available – leads to a lot of noncompliance.


Light-duty vehicles in energy

policy –

Policies – Feebate

Feebate = tax or subsidy for new car fuel efficiency,

proportional to deviation from a “pivot point” set in

the law


Light-duty vehicles in energy

policy –

Policies – Feebate

Feebate = tax or subsidy for new car fuel efficiency,

proportional to deviation from a “pivot point” set in

the law

Can be viewed as an extension of the current “gas-guzzler

tax” to trucks, plus rebate


Light-duty vehicles in energy

policy –

Policies – Feebate

“High feebate” policy: set at level to approximate

impact of “Pavley CAFE”

Tax/subsidy for new light-duty vehicle:

2017: $1000 per 0.01 gal/mi deviation

2021: $2000 per 0.01 gal/mi deviation

2030: $2970 per 0.01 gal/mi deviation


Light-duty vehicles in energy

policy –

Policies – Feebate

“High feebate” policy: set at level to approximate

impact of “Pavley CAFE”

Tax/subsidy for new light-duty vehicle:

2017: $1000 per 0.01 gal/mi deviation

2021: $2000 per 0.01 gal/mi deviation

2030: $2970 per 0.01 gal/mi deviation

Deviation is from a “pivot point” –

Changes over time to make policy revenue-neutral


Light-duty vehicles in energy

Outline

policy

1. Role of light-duty vehicles

2. Policies considered

3. Simulation results


Light-duty vehicles in energy

policy –

Simulation results

All results are shown as changes relative to the baseline


Light-duty vehicles in energy

policy –

Simulation results

High Fuel

Tax

High

Feebate

CAFE

Results for 2030:

Reduced oil consumption -4.4% -4.0% -3.7%

Reduced energy-related CO2 -2.2% -1.6% -1.3%


Light-duty vehicles in energy

policy –

Simulation results

High Fuel

Tax

High

Feebate

CAFE

Results for 2030:

Reduced oil consumption -4.4% -4.0% -3.7%

Reduced energy-related CO2 -2.2% -1.6% -1.3%

Differences in effectiveness reflect stringency modeled


Light-duty vehicles in energy

policy –

Simulation results

High Fuel

Tax

High

Feebate

CAFE

Results for 2030:

Reduced oil consumption -4.4% -4.0% -3.7%

Reduced energy-related CO2 -2.2% -1.6% -1.3%

Welfare costs of policy:

Mainly extra vehicle costs, less fuel savings.


Light-duty vehicles in energy

policy –

Simulation results

High Fuel

Tax

High

Feebate

CAFE

Results for 2030:

Reduced oil consumption -4.4% -4.0% -3.7%

Reduced energy-related CO2 -2.2% -1.6% -1.3%

Welfare costs of policy:

Mainly extra vehicle costs, less fuel savings.

Fuel savings valued alternately assuming:

(a) market failure in consumer vehicle purchases

(b) hidden amenity costs.

Average of two shown here.


Light-duty vehicles in energy

policy –

Simulation results

High Fuel

Tax

High

Feebate

CAFE

Results for 2030:

Reduced oil consumption -4.4% -4.0% -3.7%

Reduced energy-related CO2 -2.2% -1.6% -1.3%

Net present value 2010-2045:

Welfare cost ($ billion) 53 45 42

Cost effectiveness: petroleum

($/bbl) 10 12 12

Cost effectiveness: CO2

($/metric ton) 22 31 35


Light-duty vehicles in energy

policy –

Simulation results

High Fuel

Tax

High

Feebate

CAFE

Results for 2030:

Reduced oil consumption -4.4% -4.0% -3.7%

Reduced energy-related CO2 -2.2% -1.6% -1.3%

Net present value 2010-2045:

Welfare cost ($ billion) 53 45 42

Cost effectiveness: petroleum

($/bbl) 10 12 12

Cost effectiveness: CO2

($/metric ton) 22 31 35

Fuel tax is less costly to society per unit of effectiveness


Light-duty vehicles in energy

policy –

Simulation results

High Fuel

Tax

High

Feebate

CAFE

Results for 2030:

Reduced oil consumption -4.4% -4.0% -3.7%

Reduced energy-related CO2 -2.2% -1.6% -1.3%

Net present value 2010-2045:

Welfare cost ($ billion) 53 45 42

Cost effectiveness: petroleum

($/bbl) 10 12 12

Cost effectiveness: CO2

($/metric ton) 22 31 35

Fuel tax is less costly to society per unit of effectiveness

Feebates and CAFE are about equally cost-effective, due to

flexibility built into CAFE.


Light-duty vehicles in energy

policy –

Simulation results – higher policy

level High Fuel

Tax

High

Feebate

CAFE

Results for 2030:

Reduced oil consumption -4.4% -4.0% -3.7%

Reduced energy-related CO2 -2.2% -1.6% -1.3%

Net present value 2010-2045:

Welfare cost ($ billion) 53 45 42

Cost effectiveness: petroleum

($/bbl) 10 12 12

Cost effectiveness: CO2

($/metric ton) 22 31 35


Light-duty vehicles in energy

policy –

Simulation results – higher policy

level High Fuel

Tax

High

Feebate

CAFE

Results for 2030:

Reduced oil consumption -4.4% -4.0% -3.7%

Reduced energy-related CO2 -2.2% -1.6% -1.3%

Net present value 2010-2045:

Welfare cost ($ billion) 53 45 42

Cost effectiveness: petroleum

($/bbl) 10 12 12

Cost effectiveness: CO2

($/metric ton) 22 31 35


Light-duty vehicles in energy

policy –

Simulation results – higher policy

level High

Feebate

Results for 2030:

Reduced oil consumption -3.7%

Reduced energy-related CO2 -1.3%

Net present value 2010-2045:

Welfare cost ($ billion) 42

Cost effectiveness: petroleum

($/bbl) 12

Cost effectiveness: CO2

($/metric ton) 35


Light-duty vehicles in energy

policy –

Simulation results – higher policy

level High

Feebate

Very High

Feebate

Results for 2030:

Reduced oil consumption -3.7% -5.2%

Reduced energy-related CO2 -1.3% -1.9%

Net present value 2010-2045:

Welfare cost ($ billion) 42 117

Cost effectiveness: petroleum

($/bbl) 12 23

Cost effectiveness: CO2

($/metric ton) 35 67

“Very high feebate” defined as twice the “high feebate” rate


Light-duty vehicles in energy

policy –

Simulation results – higher policy

level High

Feebate

Very High

Feebate

Results for 2030:

Reduced oil consumption -3.7% -5.2%

Reduced energy-related CO2 -1.3% -1.9%

Net present value 2010-2045:

Welfare cost ($ billion) 42 117

Cost effectiveness: petroleum

($/bbl) 12 23

Cost effectiveness: CO2

($/metric ton) 35 67

“Very high feebate” defined as twice the “high feebate” rate

Effectiveness: About 50% higher


Light-duty vehicles in energy

policy –

Simulation results – higher policy

level High

Feebate

Very High

Feebate

Results for 2030:

Reduced oil consumption -3.7% -5.2%

Reduced energy-related CO2 -1.3% -1.9%

Net present value 2010-2045:

Welfare cost ($ billion) 42 117

Cost effectiveness: petroleum

($/bbl) 12 23

Cost effectiveness: CO2

($/metric ton) 35 67

“Very high feebate” defined as twice the “high feebate” rate

Effectiveness: About 50% higher

Cost: Nearly triple


Light-duty vehicles in energy

policy –

Simulation results – higher policy

level High

Feebate

Very High

Feebate

Results for 2030:

Reduced oil consumption -3.7% -5.2%

Reduced energy-related CO2 -1.3% -1.9%

Net present value 2010-2045:

Welfare cost ($ billion) 42 117

Cost effectiveness: petroleum

($/bbl) 12 23

Cost effectiveness: CO2

($/metric ton) 35 67

“Very high feebate” defined as twice the “high feebate” rate

Effectiveness: About 50% higher

Cost: Nearly triple

Cost per unit effectiveness is considerably higher


Light-duty vehicles in energy

policy –

Simulation results – external road

costs


Light-duty vehicles in energy

policy –

Simulation results – external road

costs High Fuel

Tax

High

Feebate

CAFE

Net present value 2010-2045:

Welfare cost ($ billion) 53 45 42

Cost effectiveness: petroleum

($/bbl) 10 12 12

Cost effectiveness: CO2

($/metric ton) 22 31 35


Light-duty vehicles in energy

policy –

Simulation results – external road

costs High Fuel

Tax

High

Feebate

CAFE

Net present value 2010-2045:

Welfare cost ($ billion) 53 45 42

Cost effectiveness: petroleum

($/bbl) 10 12 12

Cost effectiveness: CO2

($/metric ton) 22 31 35

NPV with external road costs:

Welfare cost ($ billion) -183 80 89

Cost effectiveness: petroleum

($/bbl) -35 22 26

Cost effectiveness: CO2

($/metric ton) -75 56 74

Policy costs change dramatically!


Light-duty vehicles in energy

policy –

Simulation results – external road

High Fuel

High

costsTax

CAFE Feebate

Net present value 2010-2045:

Welfare cost ($ billion) 53 45 42

Cost effectiveness: petroleum

($/bbl) 10 12 12

Cost effectiveness: CO2

($/metric ton) 22 31 35

NPV with external road costs:

Welfare cost ($ billion) -183 80 89

Cost effectiveness: petroleum

($/bbl) -35 22 26

Cost effectiveness: CO2

($/metric ton) -75 56 74

Policy costs change dramatically!

Costs of fuel tax change to benefits! – due to reducing VMT


Light-duty vehicles in energy

policy –

Simulation results – external road

costs High Fuel

Tax

High

Feebate

CAFE

Net present value 2010-2045:

Welfare cost ($ billion) 53 45 42

Cost effectiveness: petroleum

($/bbl) 10 12 12

Cost effectiveness: CO2

($/metric ton) 22 31 35

NPV with external road costs:

Welfare cost ($ billion) -183 80 89

Cost effectiveness: petroleum

($/bbl) -35 22 26

Cost effectiveness: CO2

($/metric ton) -75 56 74

Policy costs change dramatically!

Costs of CAFE, feebate double! – due to increasing VMT


Light-duty vehicles in energy

policy – Simulation results:

Conclusions


Light-duty vehicles in energy

policy – Simulation results:

Conclusions

■ Fuel tax works partly through reducing VMT;

CAFE & feebates work more through fuel efficiency of

new vehicles


Light-duty vehicles in energy

policy – Simulation results:

Conclusions

■ Fuel tax works partly through reducing VMT;

CAFE & feebates work more through fuel efficiency of

new vehicles

Corollary: fuel tax is complementary to either of

the other two policies


Light-duty vehicles in energy policy –

Simulation results: Conclusions

■ Fuel tax works partly through reducing VMT;

CAFE & feebates work more through fuel efficiency of new

vehicles

■ Fuel-tax policies reap energy benefits much more quickly,

but need very high tax to have much effect


Light-duty vehicles in energy policy –

Simulation results: Conclusions

■ Fuel tax works partly through reducing VMT;

CAFE & feebates work more through fuel efficiency of new

vehicles

■ Fuel-tax policies reap energy benefits much more quickly,

but need very high tax to have much effect

■ Hybrid-electric vehicles play important role (even in

baseline policy)


Light-duty vehicles in energy policy –

Simulation results: Conclusions

■ Policy costs depend very strongly on:

● Whether we count external costs of driving

(especially congestion, accidents


Light-duty vehicles in energy policy –

Simulation results: Conclusions

■ Policy costs depend very strongly on:

● Whether we count external costs of driving

(especially congestion, accidents

● Why consumers undervalue future fuel

savings

(market failure, or hidden amenity losses?)

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