Advances in Energy Policy: New Opportunities for Japan Amory B. Lovins CEO (Research), Rocky Mountain Institute, www.rmi.org Director, The Hypercar Center, www.hypercarcenter.org Chairman, Hypercar Inc., www.hypercar.com Energy Policy Working Group (Kaya Yoichi-sensei, Chairman), MITI MIITI, Tokyo, 27 November 2000 Copyright © 2000 Rocky Mountain Institute. All rights reserved. Noncommercial distribution by the Working Group is permitted for its and participants’ internal use. The Brownian Random Walk of World Real Oil Price, 1881–1993 Year-to-year percentage price % change, y ea r (-12 ,+255) n -1 to n changes with a one-year lag in 1974 8 5 between the axes. If the price movements showed a trend, 6 5 the “center of gravity” would 4 5 favor a particular quadrant. All that 2 5 % ch an g e, y ear n to n +1 happened after -5 5 -3 5 -15 5 25 4 5 65 85 5 1973 is that volatility tripled; (+255,+4) -1 5 in 197 3 changes stayed perfectly random, -3 5 just as for any -5 5 other commodity. Graph devised by H.R. Holt, USDOE Market surprise: world crude-oil real price vs. oil consumption, 1970–1Q2000 50 1981 1983 45 1980 40 35 1985 30 1979 1991 25 1974 2000 1997 (1Q consumption) 20 1987 15 1989 1998 10 price (Saudi 34°API light,1992 $) 1999 5 1970 1973 0 45.0045 50.0050 55.00 55 60 60.00 65 65.00 70 70.00 75 75.00 80 80.00 consumption, million barrels per day Data source: http://www.doe.eia.gov, downloaded 24 October 2000 By 2050, an affluent world could meet or beat a 3–4´ C reduction goal ´ 2 ´ 3–4 ÷ 2–4 population ´ affluence per capita ´ carbon intensity C = energy conversion eff. ´ end - use eff. ´ hedonic eff. ´ 1.5 ´ 4–6 ´ 1–2? or ~1.5–12´ lower emissions despite assumed 6–8´ growth in Gross World Product. (A 1993 UN study* found 1.35´ and 8´ respectively, 1985–2050.) Great flexibility is thus available. The future is not fate but choice. *Johansson, Kelly, Reddy, Williams, & Burnham, Renewable Energy, 1177 pp., Island Press, Washington DC. This analysis, though mostly excellent on the supply side, assumed relatively weak end-use efficiency opportunities. PrinciplesPrinciples ofof NaturalNatural CapitalismCapitalism 1.1. RadicallyRadically increasedincreased resourceresource productivityproductivity 2.2. Biomimicry:Biomimicry: closedclosed loops,loops, nono waste,waste, nono toxicitytoxicity 3.3. ShiftShift economyeconomy fromfrom productionproduction ofof goodsgoods toto creationcreation ofof flowflow ofof services,services, rewardingrewarding #1#1––22 4.4. ReinvestReinvest inin naturalnatural capitalcapital Natural capitalism • A way of doing business as if nature were properly valued...but without needing to know what it’s worth • Far more profitable even when natural capital, as now, is valued at zero • Introduced 30 September 1999, US/UK • Published so far in English, German, Portuguese, Chinese (simplified char.) • Forthcoming in Japanese, Danish, Estonian, Italian, Korean, Russian,…. • Being rapidly adopted in private sector USUS hashas savedsaved $200$200 billion/yearbillion/year inin energyenergy costscosts sincesince 11973973——butbut stillstill wasteswastes $300$300 billionbillion aa yearyear – Power-plant-fuel to incandescent-light efficiency: 3% – Efficiency with which a modern 12 km/L car converts fuel energy into driver motion: <1% U.S.U.S. powerpower plantplant wastewaste heatheat == totaltotal JapaneseJapanese energyenergy useuse EvenEven JapanJapan’’ss economyeconomy isis <10%<10% asas energy-efficientenergy-efficient asas physicsphysics permitspermits Major Linked Surprises Are Coming • Negawatts (emphasizing electricity) – Huge overhang…starting to be bought? – Dramatic shifts of (not just along) demand curves can yield expanding returns – Energy price may become less relevant • HypercarsSM – The biggest industry-changer since chips – A nega-OPEC, decoupling cars from CO2 – Soon a major distributed power generator – Key to a rapid hydrogen transition • Distributed utilities – Microturbines, renewables, fuel cells,... – Distributed benefits, twelve driving forces US Primary Energy Consumption Is Now Within 2% of the 1976 “Soft Energy Path” 250 primary energy consumption (quadrillion BTU/year) 200 "hard path" projected by industry and government around 1975 150 actual total consumption reported by USEIA "soft path" proposed by 100 Lovins in 1976 coal coal oil and gas 50 soft technologies oil and gas (which do not include big hydro or nuclear) nuclear renewables 0 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 Efficiency can work quickly • US doubled its new-car efficiency 1973–86 (only 4% of that saving came from making cars smaller, 96% because they’re smarter) • US cut oil use 4.8%/y and Persian Gulf imports by 87% 1977–85 — saving one Alaska, or twice Gulf imports • US in 1996–99 nearly beat its all-time record for the 3-year speed of saving energy (averaging 3.2% per year) despite record-low and falling energy prices • Japan used to be the fastest energy-saver among all industrialized countries Efficiency can work quickly • In 1983–85, 10 million people served by Southern California Edison Company were cutting its 10-years-ahead forecast peak load by 81/2% per year, at ~1% of long-run marginal supply cost • In 1990, New England Electric System got 90% of a small-business retrofit pilot program’s market in 2 months • Pacific Gas and Electric Co. got 25% of its 1990 new-commercial-construction market in 3 months, raised its 1991 target…and got it all during 1–9 January • New delivery methods are even better Old Methods of Marketing Negawatts (can maximize participation and savings per participant) • Information, exhortation, education – General public – Targeted or technical: builders, designers,… • Financing – Low- or no-interest loans – “Full financing” (gifts), usually cheaper • Pilot and demonstration projects • Third-party investors, Energy Service Companies (can be utility-owned) • Leasing (¥20/lamp-month?…) Old Methods (continued) • Rebates – Targeted, then generic per kW or kWh – To buyer, wholesaler, retailer, manufacturer, other trade allies,…; leverage markups – Plus scrapping inefficient old devices – For beating minimum standards • Equipment, buildings,… • Standards really work, but are relatively static – Not for equipment but for efficient design • “Golden carrots” to elicit innovation New Methods Make Markets in Negawatts (can also maximize competition in who saves and how) • Competitive bidding processes – Industrial modernization grants – Generalized (“all-source”) auctions • Fungible savings (with grid credit) – Morro Bay example for saving water – Wheeling savings between customers, utilities, States, even countries (P.Q./VT) – Arbitrage between negawatts and megawatts – Spot, futures, & options markets in both New Methods (continued) • Peak-load-limit commitments – Can be traded in secondary market – Value reduced demand uncertainty • Efficiency cross-marketing (el./gas) • Market transformations, e.g. BC Hydro • Performance-linked “feebates” to hook up new buildings – Don’t become obsolete like standards – Reward and elicit continuous improvement • Performance-based design fees • Targeted mass retrofits • Systematic “barrier-busting” How Much Electricity Can Be Saved? • Late-1980s technologies could save 3/4 of Danish buildings’ el. or 1/2 of all Swedish el. at ¥1.7/kWh; 4/5 of German home el. with ~40%/y aftertax ROI (w/fuel-switching) • Similar findings worldwide 1979–97 • Full retrofit of best mid-1980s technolo- gies could save ~3/4 of US electricity at average ’86 cost ~¥0.65/kWh (better now) • This RMI finding is broadly consistent with EPRI’s assessment in our joint 1990 Sci. Amer. article (the differences are almost all methodological, not substantive) RMI’s >1000-technology 1987 analysis of US 75%-saving retrofit potential… . Sorry, but it’s conventional among non-economist efficiency analysts to show end-use efficiency as a “resource” with a “supply curve”. .. TF 22.X.88 ...is now known to be conservative in both quantity and cost New Tools for Capturing the Vast Overhang of Unbought Negawatts • Technical guides (www.esource.com) • For designers, developers (www.rmi.org) • Cheaper capital (www.ipmvp.org) • ~60–80 market failures in buying energy efficiency can be turned into business opportunities; see prospector’s guide* • Side-benefits worth far more than kWh – ~6–16% higher labor productivity**, 40% more retail sales, ~20–26% higher school test scores, more/better industrial output,… *“Climate: Making Sense and Making Money,” www.rmi.org, at pp. 11–20 **“Greening the Building and the Bottom Line,” from www.rmi.org Perhaps the Most Potent New Tool: Use Empirical, Not Theoretical, Costs • Virtually the entire literature assumes that greater end-use efficiency incurs increasing marginal costs • This assumption is often empirically untrue even for simple components • Design can make it generally untrue by optimally combining components • In theory, theory and practice are the same, but in practice they’re not Old design mentality: always diminishing returns... High Efficiency Doesn’t Always Raise Even Components’ Capital Cost • Motor Master database shows no corre- lation between efficiency and trade price for North American motors (1800-rpm TEFC Design B) up to at least 200 kW E SOURCE (www.esource.com) Drivepower Technology Atlas, 1999, p 143, by permission • Same for industrial pumps, most rooftop chillers, refrigerators, televisions,… • “In God we trust”; all others bring data New design mentality: expanding returns, “tunneling through the cost barrier” NewNew