Clean Energy Scenarios

Report by U.S. national laboratories sees big potential for gains in energy efficiency and conservation

As we move into the 21st century, a number of key energy-related challenges face the nation. U.S. dependence on imported oil is growing, increasing the nation's vulnerability to supply and price disruptions. Electricity outages, power disturbances, and price spikes threaten U.S. productivity, especially in the rapidly growing information-based service industries. Despite ongoing improvements in air quality, air pollution from burning hydrocarbons continues to cause high levels of respiratory illnesses, acid rain, and photochemical smog. And global climate change threatens to impose significant long-term costs from increasing temperatures, rising sea levels, and more extreme weather. The prosperity and well-being of future generations will be strongly affected by the manner in which the nation responds to these challenges.

Following a 1997 study, Scenarios of U.S. Carbon Reductions, the U.S. Department of Energy (DOE) commissioned an Interlaboratory Working Group to examine the potential for public policies and programs to foster efficient and clean energy technology solutions to these energy-related challenges. This [Clean Energy Future (CEF) report] reflects the best efforts of the Interlaboratory Working Group to understand and present that potential. The three key conclusions are:

• Smart public policies can significantly reduce not only carbon dioxide emissions, but also air pollution, petroleum dependence, and inefficiencies in energy production and use. A range of policies exists...that could move the United States a long way toward returning its carbon dioxide emissions to 1990 levels by 2010.

• The overall economic benefits of these policies appear to be comparable to their overall costs.

• in the CEF assessment are unlikely to alter the overall conclusions. The policy and technology opportunities identified are so abundant that they compete with each other to reduce carbon emissions. We would expect enough of them to be successful to achieve the results we claim.

Clean future scenarios

This study does not make policy recommendations. Rather, [its] purpose is to better understand the costs and benefits of alternative sets of policies.

The structured development of energy scenarios allows a way to examine a range of public policies and to consider alternative possibilities. The CEF study develops three scenarios: Business-as-Usual (BAU), Moder-ate, and Advanced. The BAU scenario assumes a continuation of current energy policies and a steady, but modest pace of technological progress.

In contrast, the Moderate and Advanced scenarios are defined by policies that are consistent with increasing levels of public commitment and political resolve to solving the nation's energy-related challenges [by means of clean energy technologies, including:]

• measures that reduce the energy intensity of the economy (for example, more efficient lighting, cars, and industrial processes),

• measures that reduce the carbon intensity of the energy used (renewable, nuclear, natural gas, and more efficient fossil-fueled electricity plants), and

• measures that integrate carbon sequestration [capture of carbon dioxide] into the energy production and delivery system (such as integrated gasification combined cycle plants with carbon separation and storage).

To place the CEF scenarios within an expanded context that considers the post 2020 period, we qualitatively describe energy technology breakthroughs that could occur by mid-century. These include carbon sequestration from coal, a new generation of nuclear power plants, advanced gas and chemical separation technologies, hybrid electric systems deploying wind power and gas turbines in combination with low-cost storage and advanced power electronics, and a host of highly efficient and advanced renewable energy technologies. The policies identified as most important in the Advanced scenario may be summarized [however selectively] as follows:

Buildings

• New and tighter efficiency standards for equipment

• Voluntary labeling, programs promoting deployment of energy-efficient technologies

• Adoption and enforcement of more demanding building codes

Industry

• Build on existing voluntary agreements with companies and associations to achieve 0.5-percent annual efficiency improvements over business-as-usual

• Expand cost-shared federal R&D expenditures by 50 or 100 percent

Transportation

• Voluntary fuel-efficiency agreements with auto manufacturers

• "Pay-at-the pump" auto insurance

Electric generators

• Renewable energy portfolio standards and production tax credits

• Electric industry restructuring

Cross-sector policies

• Doubled federal R&D

• Domestic carbon trading system

A key policy mechanism for the Advanced scenario across all of the sectors is the addition of a domestic carbon trading system. In this system, which is assumed to be announced in 2002 and implemented in 2005, permits are sold annually in a competitive auction run by the federal government. The carbon emissions annual limit is set so that the permit price equilibrates at $50 per ton of carbon (in 1997$) throughout the period. A $25/tC case is also analyzed.

The second key policy mechanism in the Advanced scenario for all of the sectors is the doubling of federal government appropriations for cost-shared R&D in efficient and clean energy technologies. As these resources are spent in public/private R&D partnerships, they are matched by private-sector funds, resulting in an assumed increase of $1.4 billion per year by 2005.

The scenarios do not include international emissions trading, which could be important to meeting possible carbon emission targets.

Opportunities in electricity

The key policy driving the changes within the electric sector is the carbon allowance in the Advanced scenario. The carbon allowance plays a role in two ways. First, because of its larger impact on carbon-intensive fuels such as coal and inefficient oil and gas plants, no unplanned coal plants were added and 83 GW of coal capacity was retired by 2020 in the Advanced scenario. In addition, 112 GW of other fossil steam (oil and gas) were retired.

Second, the carbon allowance directly impacts the variable cost of production, thereby causing the remaining carbon-intensive technologies to lower their capacity factor. Nuclear power better maintained its cost-effectiveness.

Transportation barriers

A strong case can be made that energy fuels are underpriced, because market prices do not take full account of a variety of social costs associated with fuel use, and especially oil use (transportation is 95 percent dependent on petroleum products for fuel). Those externalities [social costs not reflected in prices] most directly tied to fuel use are greenhouse gases,...air, water, and land pollution, and...impacts associated with the uneven geographic distribution of oil resources [including] military expenditures associated with [the ] Persian Gulf....

[Another barrier: poor information] In making vehicle purchases, consumers and businesses experience difficulty in making rational choices about trading off the costs and benefits of different levels of energy efficiency.