RED | the new greenwww.recycled-energy.com Profitably Reducing Greenhouse Gas Emissions MIT Energy Initiative Seminar Series Thomas R. Casten, Chair Recycled Energy Development, LLC September 9, 2008

RED | the new greenwww.recycled-energy.com Presentation Synopsis  Generation efficiency is the Elephant in the Room – that no one sees  Improving generation efficiency addresses climate change, jobs, balance of payments, security, income growth & more  Regulations select against efficiency, local generation & waste energy recycling  Waste energy recycling can profitably lower GHG emissions  Suggested policies to improve efficiency

RED | the new greenwww.recycled-energy.com Generation Inefficiency is the Elephant in the Room The elephant seems invisible, but threatens life as we know it

RED | the new greenwww.recycled-energy.com Homer Simpson’s Power Plant

RED | the new greenwww.recycled-energy.com Generation Plant in Craig, CO, Venting 65% of Input Energy

RED | the new greenwww.recycled-energy.com Inefficient US Electric Generation Related Headlines: “Recent Warming of Arctic may Affect World Climate” —NASA “US Manufacturing Jobs Fading Away Fast” — USA Today “UN Warns of Rapid Decay of Environment” — New York Times “OPEC Not Expected to Raise Production despite Record-High Oil Prices” —Associated Press

RED | the new greenwww.recycled-energy.com Electric Generation’s Increasing Contribution to CO 2 Emissions

RED | the new greenwww.recycled-energy.com 69% of CO 2 from Generating Heat and Power

RED | the new greenwww.recycled-energy.com Can U.S. Simply Switch to All Renewable?  Gore calls for 100% switch by 2020  Huge investment in T&D and wind  Solar very expensive  Dirty coal underpins much industrial production  Consider historical data  Consider doubling fossil generation efficiency first

RED | the new greenwww.recycled-energy.com US Fuels for Electricity

RED | the new greenwww.recycled-energy.com Tentative Conclusions  Electric generation efficiency peaked, has not improved in 50 years (see ‘Technology and Transformation” Richard F. Hirsh)  Markets not working?  Regulations at fault?  Need paradigm shift to local generation to double efficiency

RED | the new greenwww.recycled-energy.com What if Access to Useful Energy Explains Most of Observed Income Changes? People know intuitively the importance of having energy services, but economists do not find a correlation between raw fuel use and income growth.

RED | the new greenwww.recycled-energy.com Analysis of Exergy to Useful Work (Thanks to Dr. Robert U. Ayres)  MIT’s Dr. Solow said, in 1956, that changes in technical productivity explain most changes in income  Dr. Ayres estimated the useful work each year from , says this explains 85% of income changes  If Ayres is right, stagnant efficiency & rising fossil fuel prices spell trouble  The low conversion efficiencies to useful work surprise most people

RED | the new greenwww.recycled-energy.com Conversion of Electricity to Light is Awful

RED | the new greenwww.recycled-energy.com 2 nd Law Conversion Efficiency to Low Temperature Heat – Lousy!

RED | the new greenwww.recycled-energy.com 2 nd Law Conversion to High Temperature Heat a Little Better

RED | the new greenwww.recycled-energy.com Electricity Conversion to All Uses < 60%

RED | the new greenwww.recycled-energy.com But Delivered Electric Efficiency Stalled Since Eisenhower

RED | the new greenwww.recycled-energy.com Electric-only Coal & Oil Heat Rates Stopped Falling by 1960 Source: EIA

RED | the new greenwww.recycled-energy.com Electric Efficiency Gains Slowed after Mid-Fifties, Now Gone

RED | the new greenwww.recycled-energy.com Yearly Changes in U.S. Efficiency (Potential Energy to Useful Work) Trouble Ahead?

RED | the new greenwww.recycled-energy.com Conversion of Exergy to Useful Work Has Improved, but < 14%

RED | the new greenwww.recycled-energy.com Conclusions From Dr. Ayres Work  The U.S. wastes 86% of input energy - room for improvement  Efficiency gains in end use no longer offsetting electric generation stagnation – the elephant in the room  Not one Presidential candidate mentioned generation efficiency  The elephant is invisible!

RED | the new greenwww.recycled-energy.com Conversion Efficiency Conclusions  We appear to have bred efficiency out of the U.S. energy conversion system  The electric sector stopped improving efficiency in 1950’s, is now loosing ground  The overall U.S. conversion efficiency to useful work stopped growing, began shrinking after 2000  The elephant in the room, although largely invisible, explains many problems

RED | the new greenwww.recycled-energy.com Regulations Block Efficiency Electricity is not a free market!

RED | the new greenwww.recycled-energy.com “Since the Industrial Revolution, government regulation has been used to control the production and distribution of the social necessity called energy” “Energy Law” Toman, Joseph P. and Cudahy, “Richard D. West Publishing Co., 1992

RED | the new greenwww.recycled-energy.com Regulation Blocks Generation Efficiency  Utilities not rewarded for efficiency since 1920  The 1970 Clean Air Act ignores efficiency, mandates controls that increase parasitic loads, cut efficiency  New Source Review penalizes efficiency investments with loss of operating permit  Blocks new construction. Weighted average age of coal plants:  1970: 10 years old  2007: 35 years old

RED | the new greenwww.recycled-energy.com Regulation Also Blocks Local Generation  MIT was bloodied by Boston Edison for generating their own power; regulators did nothing  Local generation that recycles waste energy streams, denied 40% to 50% of benefits it creates by regulation  Local generation is not ‘charismatic’ carbon savings, sees few inducements

RED | the new greenwww.recycled-energy.com But Recycling Waste Energy Solves Many Problems  Energy recycling:  Gives factories added revenue,  Preserves U.S. jobs  Saves money and  Cuts CO 2 emissions  Requires paradigm shift to local gen  Waste energy streams do not travel economically, must convert on the spot  Waste heat only economic to transport 2 to 4 miles, needs local gen

RED | the new greenwww.recycled-energy.com Energy Recycling Plants We Have Developed

RED | the new greenwww.recycled-energy.com

Silicon Furnace Alloy WV

RED | the new greenwww.recycled-energy.com Economics of Clean Generation Compare costs of recycling waste energy with other clean energy approaches

RED | the new greenwww.recycled-energy.com World Alliance For Decentralized Energy  WADE modeled 20 year future of U.S. generation and electric use. Meeting growth with local generation  Reduced capital by 50%  Reduced CO2 in U.S. by 20%  Reduced fossil fuel used by electric generation by 40%  Saved $150 to $200 billion per year

RED | the new greenwww.recycled-energy.com Consider Costs (Savings) of Avoiding 1 Ton of CO 2 Versus the Best New Central Generation The four highest profit options are local generation that recycles waste energy

RED | the new greenwww.recycled-energy.com Cost (Savings) / Ton of Avoided CO 2 Emissions Local Generation with Recycling of Waste Energy

RED | the new greenwww.recycled-energy.com Policy Options to Promote Clean Energy

RED | the new greenwww.recycled-energy.com Policy Options to Induce Clean Local Generation  Clean Energy Standard Offer Program or CESOP – LT contract for clean energy at 85% of delivered cost of best central generation  Convert CAA to Output Pollution Standards – allow every emission source same allowances per unit of useful output for criteria pollutants and for CO2

RED | the new greenwww.recycled-energy.com Clean Energy Standard Offer Program (CESOP)  U.S. encourage recycled energy and other clean technology with a 'Clean Energy Standard Offer Program' (CESOP) incorporating the following principles:  Offer 20-year CESOP contracts to qualifying clean technology facilities  Pay roughly 85% of cost of delivered power from new coal plants.  Let local generation compete with conventional central generation

RED | the new greenwww.recycled-energy.com Output Pollution Standards  Replace CAA rules with output allowance per unit of useful heat and of useful power for each pollutant  Require each plant to obtain allowances equal to annual pollution  Dirty plants purchase from clean plants  Recycling waste heat adds allowances  Each ‘stick’ has equal ‘carrot’, market decides which technology to build  Lower allowances on schedule, corrected for total output

RED | the new greenwww.recycled-energy.com Other Policy Changes  End monopoly protection of electric generation  Preserve monopoly protection of electric distribution  Require local generators to sell to grid to be eligible for CESOP – avoids backup issue  End New Source Review, use output allowances to control and reduce pollution, freeing all to invest in efficiency  Adopt national Clean Energy Portfolio Standards covering all clean energy, including waste energy recycling

RED | the new greenwww.recycled-energy.com Conclusions  Stagnant generation efficiency is the elephant in the room, causing many problems  New research suggests importance of energy services to income growth  We can cut CO2 by 20% and save $150 billion per year with local generation that recycles waste energy  Regulatory changes will induce profitable GHG reduction

RED | the new greenwww.recycled-energy.com Thank You for Your Interest in Clean Energy X X X