1

POLICIES THAT

WORK2016 EDITION

2

WHY POLICY?

Peter Essick, National Geographic NRELCLEANLINESS

3

WHY POLICY?

SECURITY

4

WHY POLICY?

PRODUCTIVITY

5

THREE COMPLEMENTARY TYPES OF ENERGY POLICY

Performance

Standards

Redu

ce Co

sts O

f

Support for R&D

Economic Signals

Reduce price shock

of

Accelerate uptake of

Create markets for

Reduce costs of

Enco

urag

e

6

ECONOMIC SIGNALS

Advantages: Markets allowed to find the lowest

cost solution

Reduced government interference

Prices affect decisions about the purchase and usage of technologies, and these reinforce each other

Disadvantages: Some sectors are resistant to

price signals (ex. split incentives)

Setting a ‘true’ price can be politically difficult

For some consumers, energy prices do not affect their behavior Costs still too low to matter No alternative option

Set the price of energy to reflect its ‘true value’

7

PERFORMANCE STANDARDS

Advantages: Proven very effective,

historically

Overcomes market barriers

Stimulates technological innovation Accelerates market

saturation

Disadvantages: If poorly-designed, may

unintentionally induce unreasonable prices

If well-design, may fail to change consumer behavior…

Or inadvertently affect the wrong behavior Ex: rebound effect

Set requirements for technology performance

8

SUPPORT FOR R&D

Advantages: Accelerating innovation can…

Spur private investment Create news jobs and businesses Increase the number of

alternatives, drives ‘healthy competition’

Disadvantages: Energy R&D is enormously

underfunded <0.5% of both the U.S. federal

budget and U.S. private sector expenses

Scale of investment needed is too financially risky for private companies

Some technologies have benefits that are currently not monetized Ex: pollution reduction

Invest in and assist early-stage technologies

9

DESIGNING POLICIES THAT WORKThere is global experience in good and bad energy policy

Japan’s current FIT: $0.25/kWh

Dubai solar PPA: $0.03/kWh

Mexico solar PPA: $0.05/kWh

10

SIX POLICY DESIGN PRINCIPLES1. Provide regulatory certainty

2. Create long time horizons

3. Set performance standards that are technology-neutral and price-finding

4. Require continuous improvement

5. Reward performance, not investment

6. Go “upstream” to capture 100% of the market

11

1. PROVIDE REGULATORY CERTAINTY

Create long-term signals for the market

THE U.S. PRODUCTION TAX CREDIT

PTC has expired and been extended six times since 2000

12

2. CREATE LONG TIME HORIZONS Establish clear R&D

strategies Create investment targets Cost-effective Less political uncertainty Comports with capital cycle

CALIFORNIA’S AB 32Lawrence Berkeley National Laboratory; E3

California sets emissions goals for 2050, with interim targets in 2020 and

2030

13

3. TECHNOLOGY-NEUTRAL, PRICE-FINDING

Let market compete to create solutions

RENEWABLE PORTFOLIO STANDARDS

Solicit bids for solutions, and accept the lowest

offer

14

4. REQUIRE CONTINUOUS IMPROVEMENT

Overcome market barriers Self-tightening

Image sources: 1) NRDC Switchboard, 2) ACEEE

CA BUILDING CODES AND APPLIANCE STANDARDS

The 35-Year ImpactSince 1978, Californians have saved more than $65 billion in electricity and natural gas bills

through energy efficient building and appliance standards. These standards have avoided the emission of 250 million metric tons of green house gases, the equivalent to removing 37

million cars from the road.

Future CodesCode compliance for new

construction costs $2,290. After 18 months,

the installed improvements pay for themselves in energy

savings.

No new legislation needed Little administrative action

15

5. REWARD PERFORMANCE, NOT INVESTMENT

China as top wind installer

…but 15 percent is curtailed

CHINA’S CAPACITY INCENTIVES

16

6. GO UPSTREAM, CAPTURE 100% OF THE MARKET

Target emissions at the source Minimize loopholes Selective target group

More effective, efficient Less expensive, time-consuming

THE CLEAN AIR ACT’S 111(D) STANDARDS

17

EXAMPLE: THE TRANSPORTATION SECTOR

Clean alternative mobility

Clean Fuel

Clean Vehicles

Standards

Fiscal

Renewable Fuel Standard Low Carbon Fuel Standard

Vehicle efficiency standards*

Sustainable urban design

Smart urban transport

1

Fuel Pricing Vehicles Pricing VMT pricing Congestion pricing Road fee

* Vehicle efficiency standards includes fuel economy standards and CO2 / GHG standards

654

32

18

SIX POLICY DESIGN PRINCIPLES1. Provide regulatory certainty

2. Create long time horizons

3. Set standards that are technology-neutral and price-finding

4. Require continuous improvement

5. Reward performance, not investment

6. Go “upstream” to capture 100% of the market

Fuel economy standards

Set final standard 10+ years into future, with nearer-term interim target

Access to government resources for equipment and efficiency testing

Increase efficiency standards every year

Feebates, subsidies, fuel taxes

Set efficiency standard with the manufacturer, do not let underperformance enter the market

19

VEHICLE EFFICIENCY STANDARDS

05

1015202530354045 Chart Title

Vehicle weight (lbs)

Use GHG as metricsSize-based standards, not weight-based

Cover 100% market23

4

Increase stringency annually, ratcheting at 3-4% per year

1

Improved Design elements

120140160180200220240260280300

GHG

emiss

ions

(g C

O 2e/

mile

)

Footprint (ft2)

2016

2025

ratcheting at ~3% per year

605040

Source: . ICCT presentation, Nic Lutsey, Design Considerations for Fuel Economy/GHG standards2. ICCT presentation, Drew Kodjak , International experience with greenhouse gas and fuel economy standards

MPG

567

Optimize the slopeContinuous curve instead of stepsImprove test cycle

20

FEEBATES AND VEHICLE FEES

CO2 emissions

Pivot point

10,000

0

5,000

-5,000

-10,000

Reba

te ($

)

Rebate Fees

Source: ICCT report, John German, “Feebate review and assessment: best practices for feebate program design and implementation”

21

TOP TEN POLICIESTransportation:1. Vehicle performance standards2. Fuel and vehicle taxes3. Smart urban design

Utilities:4. Renewable Portfolio Standards5. Utility-scale energy efficiency programs

Buildings and Industry:6. building codes and equipment/applicance standards7. Industrial energy efficiency programs

System-wide:8. Carbon pricing9. Properly aligned economic incentives10. Support for R&D and innovation

22THANK YOU

HAL HARVEY@HAL_HARVEY

WWW.ENERGYINNOVATION.ORG