With the recent passage of the Energy Efficiency Directive through the key EU parliamentary committee on Industry, Research and Energy (ITRE), it is clear that the idea of managing emissions, improving energy security and increasing the competitiveness of the economy through managing energy efficiency remains a key policy objective. The Directive has only one more stage to pass: a vote in the whole plenary in September. The Directive obliges Member States to prepare a long-term strategy to increase the energy efficiency of their entire building sector by 2050 and to set up an energy efficiency obligation scheme that ensures that utilities reach 1.1 – 1.5% energy saving of their end-users. In addition, the Directive aims to stimulate technologies such as Combined Heat and Power in the utilities sector.
In fact many commentators and policymakers continue to believe that energy efficiency alone can address much of the CO2 problem – and that it can do so at very low cost (or even negative cost), at least compared to a ‘do nothing case’. But any successful policy toward mitigation of CO2 emissions must centre on CO2 pricing. Energy efficiency can only be a contributory factor and, in some circumstances, can even have a negative long-term impact if the centrality of CO2 pricing is not recognised.
The impact of energy efficiency policy on CO2 emissions is explored in a paper by a Shell colleague, Jonathan Sample and was recently published in The European Energy Review, but also attached here [The Limits of Energy Efficiency]. The paper looks at the issue of energy efficiency and examines some of the established beliefs about its benefits and impacts. It highlights some important missing nuances in the logic linking efficiency improvements with reductions in CO2 emissions and argues that in the absence of a credible price on CO2 emissions, the effectiveness of energy efficiency measures is greatly reduced. In fact, in some cases they may even make the problem of CO2 emissions worse in the long term.
The key to understanding the impact of energy efficiency on CO2 emissions lies in the long-term competition between the costs of using fossil fuels on the one hand, and of using non-fossil fuels (the latter of which, in this paper, includes fossil-based fuels using CCS technology) on the other. Specifically, innovations that improve the efficiency with which fossil fuel is converted into energy service, but which don’t do the same for non-fossil fuels, make fossil fuels fundamentally more affordable compared to non-fossil fuels, even though they reduce the rate of consumption in the short term. An example of this is a policy which encourages improvements in (internal combustion) vehicle efficiency. In the paper, this is referred to as a “carbon-augmenting” policy (versus a carbon-neutral policy).
Consider the example of a driver who initially uses a 30 mpg (miles per gallon) car to drive 300 miles per week when gasoline costs $4/gallon. If at some point in the future, that same driver acquires a car that achieves 60 mpg, he can carry on driving the same distance per week even if the price of gasoline were to rise to $8/gallon (all other things being equal).
At first sight, the improvement in efficiency seems a good thing: after all, there has been an immediate improvement in the driver’s living standards, as driving is now cheaper than it was before. So how might there be a problem? The greater affordability of fossil fuels caused by such improvements in energy efficiency serves to increase the future supply of fossil fuels – again a matter that Jevons brought up. The increased efficiency of the car effectively has made it profitable to produce oil with higher extraction costs without causing the driver to drive fewer miles. In the short term, the increase in productivity, net income and wealth, which is brought about by higher efficiency, contributes an additional boost to energy affordability (this ‘income effect’ will not be considered further in this paper, however).
In the long run, then, the initial halving in the rate of consumption from replacing a 30mpg car with a 60mpg car does not represent a reduction in CO2 emissions: instead of avoided emissions, it may represent only a postponement, plus a long-term addition to the stock of economically extractable resources.
CO2 pricing (through measures such as cap-and-trade or taxation) is the key to unlocking the full potential of energy efficiency to reduce CO2 emissions. In the absence of an offsetting price on CO2 emissions, measures to encourage (specifically carbon-augmenting) energy efficiency can lead to higher ultimate/potential emissions. However, where an offsetting CO2 price is applied, this can be avoided. Importantly, where there is an increase in carbon-augmenting efficiency, it is the price placed on CO2 emissions that leads to the offsetting reduction in economically extractable fossil fuels. In other words, it is the CO2 price, which does most of the work to avoid emissions, and not the efficiency increase. Unless such a price on CO2 emissions is established, carbon-augmenting energy efficiency increases should not be viewed as an “alternative” or equivalent means of reducing CO2 emissions.
In the short term, more effective and less risky options than energy efficiency measures are available in the form of transitions such as coal-to-gas switching. The effectiveness of energy efficiency measures (particularly in their carbon-augmenting form) will be greatly constrained until a CO2 pricing system is in place. Before this comes about, it is necessary to pursue more realistic, yet cost-effective alternatives.
Let’s consider the efficient car example:
Case 1 current situation on free market:
Typical driver drives 30mpg car driving 300 miles per week at price of $4/gallon spending 40$. Over 10years of car useful life the driver spends 20800$ on gasoline. After 10 years driver decides to spend 10000$ on a new car with updated technology running 40mpg so that he would spend 30$ a week saving 1300 gallon of gasoline and spending 15600$ over next 10 years.
In total driver spend 25600$, drove 156,000 miles and consumed 3900 gallons.
Case 2 Government imposes extra tax 30% on gasoline (5.2$/gallon).
If the driver wouldn’t change his behaviour and still buy 40mpg car for 10000$ after 10 years he would spend 30280$ drive 156,000 miles and consume 3900 gallons.
If driver decides to buy 60mpg car for 20000$ driving the same mileage after 10 years he would spend 33520$ drive 156,000 miles and consume 2600 gallons.
Alternatively, driver can decide to buy 40mpg car but drive only 200 miles per week. After 10 years he would spend 23520$ drive 104,000 miles and consume 2600 gallons.
Case 3 60mpg cars are mandatory with no extra tax on gasoline (4$/gallon)
Driver has to buy 60mpg car for 20000$ not changing his habits and after 10 years he would spend 30400$ drive 156,000 miles and consume 2600 gallons.
Now let’s compare the outcome from the view of money spend. The best option is free market when driver spends only 25600$. Very cost efficient in all cases is cutting the mileage. The worst option is taxing gasoline (carbon tax, cap& trade etc.) when driver buys very efficient car. This gives spending 33520$.
From environmental point of view taxing gasoline doesn’t bring better effect than mandatory regulation. However, the regulation is cheaper for driver.
The real numbers could look different but it is clear that carbon pricing would be paid for by the consumer and it is more expensive than regulation while achieving similar results. Even free market can be expected to arrive at the same result after longer time with much lower cost for costumer.
The main argument against the free market is that CO2 causes imminent global catastrophe bringing huge expenses. Many lobbyists argue that if money is paid upfront this catastrophe can be avoided. You can believe them or not but it is clear that it will cost a lot of money. At current time of economic turmoil this additional cost will likely bring economic decline.
Carbon tax is the worst of bad strategies producing useless and worthless technologies like CCS. CCS is double loss technology as it would not only suck money from the economy but also suck more fossil fuel from the market due to its inherent inefficiency. Much more viable technologies would be electric cars combined with nuclear energy and cetain types of renewable energy once they become competitive.
Jiri asserts that “the main argument .. is that CO2 causes imminent global catastrophe”…” You can believe them or not.”
I was employed to work on this notion back in 2004 and again in 2008. In 2004 it appeared to be a hoax and by 2008 it was clearly a scam. By 2012 it is clearly a fraud designed to create a bogus market in “carbon trading”. As there are no tangible assets behind carbon credits, merely tax revenue, the market is unsustainable and will collapse.
By all means, tax carbon oxidation, create poverty, and export manufacturing the Far East, but be honest about it: it is just another tax, and not part of some grand plan to ward off global catastrophe, neither imminent nor remote.
I have been employed to work on this issue for the last 10 years and seem to have come to an entirely different conclusion. Hoax, scam and fraud may sound exciting to people looking for a reason not to try and understand the physical processes of this planet (I assume that is what you mean), but the reality of rising CO2 levels cannot be overlooked, nor can the fundamental role that CO2 plays in the heat balance within the atmosphere be dismissed. I agree that we don’t know exactly what will happen as a result of shifting the CO2 level from 275 ppm to 400+ ppm, but I take the view that it would be unwise to simply ignore this, let alone ridicule the issue.
David,
I would encourage you to take one step back from this issue for just a moment. In the ~35 years since the refocusing of environmental concern from global cooling to global warming, after the expenditure of multiple tens of billions of multiple currency units, there is still no unique, universally accepted percentage reduction of global CO2 emissions required to stabilize global climate, assuming that stabilizing climate for the first time in the global history we have been able to reconstruct is either possible or desirable. Therefore, it is not now possible to assess the potential percentage contribution of any action, or set of actions, to achieving such non-existent goal.
I would argue that, in the absence of such a goal, it is not possible to select actions intended to accomplish the non-existent goal. For example, if the goal were to be set by Dr. James Hansen of NASA GISS, it would apparently be zero global annual carbon emissions plus a reduction of ~50 ppmv of current atmospheric CO2 concentrations. Both would be “neat tricks”. In such a scenario, the efficiency of fossil fueled end uses without CCS would have to be infinite, which I view as highly unlikely in the real world. Certainly, power plant conversions from coal to NG would make no sense, since that conversion would not reduce CO2 emissions to zero. The same would apply to hybrid vehicles.
I am reminded of the words of Lewis Carroll: “If you don’t know where you’re going, any road will get you there”.
David,
You do what you do. You know what you know. You believe what you believe. So be it.
I agree that the use of the terms “hoax”, “scam” and “fraud” is a bit overwrought. I also believe the use of the terms “deniers”, “disinformers”, “anti-science” and “climate zombies” (all from the Romm lexicon) is a bit overwrought. I stop reading or listening when those terms are used, because I am no longer able to take the author or speaker seriously.
I believe that clear and careful communication of issues such as climate is crucial. I do not believe that yelling and hand-waving contribute positively to clear and careful communication of complex issues. I do not believe that “adjusting” data collected from poorly sited, poorly installed, poorly maintained instruments makes it “good” data, but rather just makes it “un-data”. I believe that creating “data” from missing or non-functioning instruments is beyond the capability of even Rumpelstiltskin. I do not believe that weather becomes climate when it is hot, or when people die. I am not able to take seriously those who pick up that “trumpet” and blow it with little skill and no finesse.
I have no patience for those scientists who resist releasing their raw data, or the details of how that data has been “adjusted” to create a temperature record, or the complete documentation for their GCMs. I have no patience for ad hominem attacks; and, little patience for arguments from authority. To steal and then “adjust” a line from Jerry McGuire: “Show me the data.”
I think we are pretty much aligned. The hysteria associated with extreme events has meant that we are at risk of having an informed debate about rising concentrations of CO2 in the atmosphere. Everything that I read has led me to the view that this will be a real problem somewhere down the road, but the scale of change is unclear. My personal view is that over then next few centuries rising sea level will be the big inconvenience. But the real loss for now is the informed and grown up public debate.
David,
The revelations of Climategate and Fakegate lead me to wonder where we might find participants for a “grown up public debate”. Many of those performing the government-funded climate science appear to be maturationally challenged.
I think that David touched the core issue. There could be a problem with climate if some trends continue for hundreds of years. I agree with this statement, as I can’t see no “runaway climate indicator”. All these indicators are quite within climate variability of Holocene and well within comfortable survival of human race and 99% of other life forms. It is well within human race capability to change their behaviour in several decades should this become a major issue. However, I believe there is no need for such action now. There are more pressing issues of pollution (I mean the real pollution and not CO2 emissions) and land (ocean) use. This has far greater effect on life than minor changes in CO2 concentration, temperature, ocean pH and sea level.
David,
Some food for thought regarding surface temperatures and their adjustment.
http://wattsupwiththat.com/2012/07/29/press-release-2/
Hi David,
In light of the recent debate about the Energy Efficiency Directive and your interest in the topic, I wanted to draw your attention potential issues surrounding the EED, and what it really means for the EU.
Our energy efficiency lawyer, Marta Toporek, has written a blog (http://ow.ly/dNGS4) highlighting the gulf between the EC’s intended outcome and the likely impact of the directive.
Marta is available to talk over these issues, and we’d be pleased to help you with any other queries.
We also have lawyers working on bioenergy, fracking and the Emissions Trading System, among other issues – please let me know if you’d like to talk to any of them.
Best wishes,
Rose
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