Energy and Sustainability Part B Chapter 15 Energy and Sustainability Part B “There is something fundamentally wrong in treating the earth as if it were a business in liquidation.” -Herman Daly (1977) Peter Schwarz Professor of Economics, Belk College of Business and Associate, Energy Production and Infrastructure Center (EPIC) UNC Charlotte

Outline Introduction Meaning of Sustainability Dynamic Energy Market Conditions Sustainable Energy Energy Efficiency and Conservation Consumption Strategies of 13

Dynamic Energy Market Conditions (1) The Hotelling Rule: Addresses the efficient rate of non-renewable resource extraction Implies that competitive markets will efficiently balance extraction between now and the future Does not guarantee that use today will not compromise use for future generations Peak Oil: Proposed by M. King Hubbert, a Shell Oil geologist, in 1956 Suggested oil production would peak around 1970 and decline from there Did not consider the effect of prices While the Hotelling Rule will give the efficient extraction schedule, it will not ensure that any resources are left for the future of 13

Dynamic Energy Market Conditions (2): Impacts of Growing Global Energy Demand Demand expected to increase as population grows and developing countries advance Why has the price of oil not been increasing? Energy consumption decreased in the wake of the Great Recession Efficiency has improved Post-recession demand should continue to increase, but at a slower rate than some expected of 13

Dynamic Energy Market Conditions (3): Supply Considerations Limits to Growth: 1972: Claimed we will run out of resources 1992: Shifted focus to pollution 2002: Suggested that population growth would overwhelm resources Regardless of their main point, advocates of “Limits to Growth” assume we will eventually overshoot the earth’s ability to withstand human impact Assumes exponential growth, which is not always the case, and does not consider technology Thomas Malthus, 1798 Predicted that populations would outstrip food supplies leading to massive starvation Those who still embody the perspective that population increases threaten human well- being are known as Neo-Malthusians of 13

Sustainable Energy (1) Energy use today that does not reduce the supply available to the next generation Wind and solar are the primary sources Hydro, geothermal, and biomass are also sustainable so long as the resource does not deplete over time Amory Lovins (1976) coined the phrase “Soft Path” as using renewables as opposed to fossil fuels Advocates call for a transition to the soft path as quickly as is feasible Suggest the immediate retirement of coal plants due to environmental concerns such as climate change of 13

Sustainable Energy (2): Biomass Energy What is the difference between renewable and sustainable? Sustainable Energy (2): Biomass Energy The most ancient of fuels Wood is still widely used and is renewable, although rarely sustainable Often wood will be harvested at a rate greater than its growth rate Trees store carbon as they grow, which is released back into the atmosphere when burned Fuels that compete with food sources, such as corn-based ethanol, increase food prices and have a disproportionate effect on low income households Trash-burning plants produce a great deal of local air pollution in addition to creating unpleasant odors in surrounding areas Algae for energy production is too expensive Exxon abandoned the investigation of algae as it was deemed too costly of 13

Sustainable Energy (3) Nuclear: Coal: Potentially 65,000 years of uranium supply The only dispatchable carbon free energy source But produces waste that will last for eons Coal: Acts as a baseload in place of intermittent renewable generation Advanced combustion Converts solid coal into a synthetic gas (syngas), which is cleaner but more expensive Super and ultra-supercritical power plants Achieve higher heat rates, but cost significantly more to build Carbon Capture and Storage (CCS) Captures carbon before it leaves the plant and stores it in old mines or gas wells In the development stage of 13

Energy Efficiency and Conservation (1) Reduce: We could consume less or find technologies that are less energy-intensive Shifting from a manufacturing to a service oriented economy has also reduced energy use Reuse: Forgoing the production of an additional item will result in energy savings Recycle: Reusing the aluminum from used cans will prevent the use of additional materials, but will not necessarily save energy There are many instances where recycling costs more than new production of 13

Energy Efficiency and Conservation (2): The Rebound Effect Energy efficiency entails using less energy to achieve a given outcome Increased home insulation will allow you to maintain a given level of comfort while reducing your electricity bill However when price decreases, quantity demanded increases Energy use will decrease, but not by an amount proportional to the efficiency gains Joskow and Marron (1992) suggest that energy efficiency programs may cost up to twice as much as advertised per kWh saved The rebound effect is still economically efficient You are making more use of the energy now that it costs less per unit of comfort of 13

Consumption Strategies (1): Renewable Portfolio Standards Set targets for minimum amounts of renewable energy as a percentage of total energy used for electricity generation States set their own standards All plans are not created equal North Carolina includes minimum requirements for generation from swine and poultry waste The result of successful lobbying by the industry Converting such waste to electricity is both dirty and expensive Duke Energy, headquartered in Charlotte, NC, argues that wood burning power plants should be included in the standards Environmentalists argue that utilities will be encouraged to harvest old growth forests of 13

Consumption Strategies (2): Feed-In Tariffs A price approach as opposed to a quantity approach Hypothetically equivalent to RPS Encourages investment in renewable technologies by promoting long- term contracts between producers and utilities at higher than market prices Legal issues in the U.S. have discouraged the use of FITs Primarily used in the EU Germany and Spain were heavy users of FITs A success in terms of increased investment in renewables A failure in terms of costs to taxpayers of 13

Consumption Strategies (3): Demand Response Mechanisms Customers have traditionally resisted dynamic pricing that charges higher prices during peak hours Utilities can hypothetically achieve the same result by paying customers to decrease use during peak hours Think back to the Coase Theorem In reality, complexities make it difficult to obtain efficient results What is the correct price to pay consumers? Avoided cost of new capacity or the avoided cost of short-run fuel? How do we know the amount by which consumers have reduced their load? Determining an accurate counterfactual may not be possible Wind power at night may have a negative value Texas gives it away. of 13