POLICIES THAT WORK HAL HARVEY

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POLICIES THAT

WORK

HAL HARVEY

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THREE COMPLEMENTARY TYPES OF ENERGY

POLICY

Performance Standards Support for R&D Economic Signals Reduce costs of

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SIX POLICY DESIGN PRINCIPLES

1. Set clear performance standards (do not specify technology)

2. Have long-term goals

3. Require continuous improvement

4. Let the market find solutions

5. Avoid loopholes

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1. SET PERFORMANCE STANDARDS

Examples:

§  Fuel efficiency standards for

cars

§  Appliance and equipment

standards

§  Building codes

Advantages:

§  Very effective

§  Overcome market barriers

United States Refrigerator Use v. Time

0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 Aver ag e En er g y Use p er Unit So ld (kW h /yr ) 0 5 10 15 20 25 Refr ig er ato r vo lu me (cub ic feet) Refrigerator Size (cubic ft)

Energy Use per Unit (KWH/Year)

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2. LONG-TERM SIGNALS

§

 

Creates clear research and development strategies

§

 

Creates clear investment targets

§

 

Far more cost-effective

§

 

Less political uncertainty

§

 

Comports with capital cycle

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3. REQUIRE STEADY IMPROVEMENT

§  Incentivizes dynamic technologies

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LET THE MARKET FIND SOLUTIONS

§

 

Do not specify technology

§

 

Set performance standards

§

 

Use auctions to find subsidy

prices

§

 

Use “feebates” to reward new

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5. AVOID LOOPHOLES

§  Minimize loopholes, including:

§  Inaccurate test design

§  Failure to cover 100% of market

Bad policy allowed carmakers to define SUVs as trucks, avoiding the tighter fuel efficiency standards for passenger cars. Tests must be accurate for fuel economy labels to have meaning.

In the United States, this is a truck.

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6. ALIGN FISCAL INCENTIVES

§  Do not subsidize fossil

fuels

§  Tax externalities

§  Reward innovation

(feebates)

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EXAMPLE: THE TRANSPORTATION SECTOR

  Transport accounts for 15% of global CO2 emissions

Total emissions in 2005

100% = ~46 Gt CO₂e

7.0 Gt 15%

All Transport emissions Road transport emissions

LDVs Trucks (MDVs, HDVs) Other 55% ~36% ~9% Avia?on Sea Rail 71% 10% 16% 3% Road Transpor-‐ ta?on

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APPLY THE FRAMEWORK FOR VEHICLES

1.  Set clear performance targets

(do not specify technology)

2.  Have long-term signals

3.  Require steady improvement

4.  Let the market find the solution

5.  Avoid loopholes

6.  Align fiscal and performance

1.  Fuel Efficiency Standards (not

weight, not size, not displacement)

2.  Global race-to-the-top

3.  Fuel efficiency standards increase

every year

4.  Fleet standard for each manufacturer

5.  100% of market; Full compliance

regardless of size; measure the right things

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FUEL EFFICIENCY STANDARDS OFFER SIGNIFICANT

CARBON ABATEMENT OPPORTUNITIES

Scenario 1: 35 mpg by 2015* Scenario 2: 50 mpg by 2025 Scenario 1: 35 mpg by 2015 Scenario 2: 50 mpg by 2025

Scenario 1: 130 gCO2/km by

2015

Scenario 2: 95 gCO2/km by

2020

Carbon abatement in 2030 Mt/CO₂year

Carbon abatement in 2030

Mt/CO₂ year Carbon abatement in 2030 Mt/CO₂year

Scenario 2 730 290 Scenario 1 440 360 Scenario 2 500 140 Scenario 1 Scenario 2 320 150 Scenario 1 170 21% 35% 8% 16% 27% 38%

Source: McKinsey cost curve v2.1, ClimateWorks analysis

*: For US, 25% upward adjustment is applied to the fuel consumpLon esLmate to account for the gap between on-‐road and test-‐cycle fuel economy. No adjustment made to China fuel consumpLon.

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CHINA HAS BEEN IMPROVING THE STRINGENCY OF

ITS FUEL EFFICIENCY STANDARDS

4 6 8 10 12 14 16 500 1000 1500 2000 2500 3000 3500 4000 FE target* l/100 km Phase 2, 2008 Phase 1, 2005 Phase 3, 2012 (expected)

7.0, phase 3 fleet-average FE target

Phase 1&2 vs. Phase 3

Single vehicle standard Corporate average standard Weight based Same as Phase 1&2

Cover M1 type (<3500 kg) Same as Phase 1&2

Curb weight

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HISTORICAL CO

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IMPACT OF PASSENGER CAR FUEL

ECONOMY STANDARD WAS LIMITED

Source: Wang et al., Energy Policy 2010, China auto industry associaLon * assume changes in FE from 2002 to 2006 and from 2006 to 2009 are linear

0.1 0.4 0.9

1.8 3.0

4.1

CO₂ abatement by fuel economy standard Mt/yr

The carbon impact of fuel economy standard in China is sLll limited. This is because (1) the standard has only recently been adopted and (2) China’s vehicle weight increase

2003 2004 2005 2006 2007 2008 2009

Fuel economy of new cars*

l/100km

Fuel economy improved slowly but then started to stagnate

8.8 8.6 _8.3 _8.1 _8.1 _8.1 _8.1 2004 9.1 (2002) 2007 2006 2009 2003 2005 2008 -‐11%

Curb weight distribu?on of local gasoline vehicles

Percent 35% 24% 1090-‐1540 38% 32% <1090 27% 44% >1540 Curb weight (kg) 2006 2002 Average 1230 kg 1356 kg

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BEST PRACTICE OF VEHICLE EFFICIENCY STANDARD

DESIGN

0 5 10 15 20 25 30 35 40 45 0 2000 4000 6000 8000 10000 12000 2a 2b ₆ Vehicle weight (lbs)

Use GHG as metrics Cover 100% market

2 3

Increase stringency annually, ratche?ng at 3-‐4% per year

1

Improved Design elements

Improve test cycle

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Op?mize the slope

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Con?nuous curve instead of steps

6 120 140 160 180 200 220 240 260 280 300 GHG emission (g CO₂e/mile) Footprint (a2₎ 2016 2025

ratche?ng at ~3% per year

1 60 50 40 5 3

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VEHICLE EFFICIENCY STANDARD: IMPROVEMENT

OPPORTUNITIES FOR DIFFERENT COUNTRIES

AcLon needed, high priority AcLon needed, lower priority No major acLon needed

China US

EU Japan

GHG as

metrics Footprint-‐based Cover 100% market 2 Improve test cycle Con?nuous standard curve 3 4 5 6 7 Con?nuous improvement 1 Op?mize the slope

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AN EFFECTIVE FEEBATE SHOULD HAVE THE FOLLOWING

ELEMENTS…

•  Annual increase in stringency

•  Combine fees and rebate •  Cover 100% of the market •  Continuous curve

•  Slope

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AN EFFECTIVE FEEBATE DESIGN SHOULD HAVE THE

FOLLOWING ELEMENTS…

CO2 emission Pivot point 10,000 0 5000 -‐5000 -‐10,000 Re bate ($ ) Rebate Fees A B

•  Increase the slope consistently

•  Reward over-compliance and penalize noncompliance

•  Extend coverage to LD trucks and M/HDVs •  Address the boundary effect (e.g. Germany)

•  2 regimes:

•  Progressive improvement of fuel economy

•  Promoting emerging technologies •  Pivot point must be adjustable

•  Feebate should be attribute neutral or based on footprint

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TOP TEN POLICIES

Transportation:

1. Vehicle performance standards 2. Fuel and vehicle levies

3. Smart urban design

Utilities:

4. Feed-in tariff and/or Renewable Portfolio Standards

5. Utility-scale energy efficiency

Buildings and Industry:

6. Effectively enforced building codes 7. Energy efficiency standards and labels

8. Industrial energy efficiency programs

Systemwide:

9. Properly aligned economic incentives

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HOW WE GET THERE

§  Good policy design applies across all

sectors; transportation is just one facet of robust energy policy.

§  There are many energy and environmental

policies out there which do not work. They were poorly designed.

§  Following the policy design principles will

help ensure your policies achieve their goals.

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THANK YOU

HAL HARVEY

W W W. E N E R G Y I N N O VAT I O N . O R G @ H A L _ H A R V E Y