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Energy
I m p e r a t i v e s:
Pa r t I
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3.1 EIA’s Energy Outlook and
Climate Change
Ms. Phyllis Martin
First of all, I want to say that it is a pleasure to attend and participate in this symposium on energy and climate change. It is interesting how energy and the Department of Energy have evolved
over the years. If we look back to the 1800s, our energy economy
was really wood based. Over the course of about 40 years we
moved to a coal-based economy and then we moved to electricity and now we are moving more and more toward renewables.
Although things changed, change occurred relatively slowly. Each
of these transactions took 40–50 years.
I remember being on the end of the coal-based era. I hate to
admit it, but when I was a little girl one of my thrills was going into
the basement and watching my father shovel coal into the furnace
and watching the coal people come and deliver it down the chute.
That shows either that I have been here for a long time or that I
come from a very small town; unfortunately, it’s both.
Ms. Phyllis Martin is a Senior Energy Analyst in the U.S. Department of
Energy’s Energy Information Administration (EIA). She has been developing energy market models since 1974 in both the corporate and government sectors. She has been an analyst in EIA’s Office of Integrated
Analysis and Forecasting since its inception. Her specialty is natural gas
markets, both domestic and international, with a strong focus on liquefied natural gas (LNG). Ms. Martin has been a speaker at numerous national and international energy conferences and is a published author.
Prior to her work with EIA, she was involved in consulting and mathematical modeling for Control Data Corporation and the Westinghouse
Defense and Space Center. Ms. Martin is a magna cum laude graduate of Saint Lawrence University, with a bachelor of science degree in
mathematics and a master’s from the Johns Hopkins University.
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I have been working with the department since it started in
1976. For those of you who are not familiar with us, the Energy
Information Administration (EIA) is an independent entity within
the Department of Energy. We collect and analyze data, put out
forecasts, and analyze proposed legislation. Because we are independent, we do not answer to anyone else within the government
or within the Department of Energy. As a result, we are known for
analyses that are independent and pretty much tell it like it is. We
do not propose any policy. What we do is we analyze for people
on the Hill what comes out and we tell them the impacts of proposed legislation.
What is most important about our forecasts is not the actual
numbers, but the incremental difference between forecasts for different years or ones based on different assumptions.
We are not going to say, “I can tell you what’s going to happen
in 2035.” If I were to tell you the price of oil is going to be $113 a
barrel, I can guarantee you one thing, and that is that the number
will be wrong. But if you look at the number that comes out from
our base case forecast and then you look at the number that comes
out from the forecast in which we look at a proposed piece of legislation, it is that difference that is the key thing.
To get started, I will first touch briefly on the global picture. We
produce an international energy outlook every year and an annual
energy outlook. I will look briefly at the international picture and
then focus in more on the domestic picture. Then, I will talk about
an analysis we did of the proposed American Clean Energy and
Security Act. [1] This bill, which has already passed the House, is
a huge bill. It is over 1000 pages and includes many provisions.
Because the Senate has yet to act on this legislation, there is no
certainty as to whether the final law, if there is one, will include
some or all of these provisions or some totally new ones.
So let’s take a look at the global energy outlook. If we look at
the increase in global energy use between now and 2030, 82%
of that increase is expected to come from the non-OECD countries, including China, India, and other countries in the Middle
East (Figure 1). The increase in global energy use in the OECD
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countries is expected to remain fairly level. However, the growth in
the developing nations is much more significant, their percentage
of the total grows from 49% to 59%, whereas the OECD countries
are expected to drop from 51% to 41%.
Figure 1. Expected Increase in Global Energy Use
Through 2030
As far as growth, use of all forms of energy is expected to grow
(Figure 2). Renewables are the fastest growing, but it is from a relatively small base that does not include biofuels. They are included
in liquids right now. If they were included in renewables, use of
renewables would grow to 11% and use of liquids would grow to
30% instead of 32%. Coal use continues to grow mainly in the
developing countries. Natural gas use grows because it is a cleanburning fuel and there is switching from more carbon-intensive
fuels to natural gas. Use of liquids continues to grow because they
are the fuel of choice for the transportation sector.
The transportation sector depends heavily on liquid fuels.
Because goods and people have to move from place to place in
order to reach markets or employers, this sector tends to be less
responsive to changes in prices than is the case with some of the
other energy sectors. Another complicating factor is that we cannot
easily substitute other fuels for gasoline or diesel when their costs
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go up, although we are trying to make that more feasible. Use
of nuclear is projected to remain about the same as at present.
Overall growth in energy use depends, of course, on economic
activity, and we can see where the GDP growth is the strongest in
the developing nations, namely China and India (Figure 3). There is
Figure 2. Expected Growth of Various Forms of Energy
Through 2030
Figure 3. Expected Growth of Energy Use in Relation to GDP
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also a lot of growth in Russia and Brazil. In these countries we see
strong growth in energy use per GDP.
Without new energy policies for carbon emissions, we will see
quite a growth between now and 2030 for the international and
between now and 2035 for the domestic outlook (Figure 4). We
are projecting that growth in both consumption and carbon dioxide output. Without emission control policies, we expect to see
strong emissions growth.
Figure 4. Expected Growth of Energy-Related
CO2 Emissions
Turning to the U.S. energy outlook, this is our annual energy
outlook. We published our base case assessment at the end of
last year, along with about forty side cases that show the range of
uncertainty about the forecasts. I really encourage people to look
at all of our side cases. The full report will be out shortly. [2] The
assumptions are key in that they really rule the forecasts. We look
at high and low technology growth, high and low world oil prices,
high and low GDP growth, and higher and lower resource bases.
So there are a number of combinations, and you cannot just take
it out of context.
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One of the key things coming into the U.S. energy outlook
right now is that the global recession is really affecting things and
we are not expecting GDP to return to the 2008 level until 2011
and consumption to reach the 2008 level until 2012.
As far as the carbon output that we had in 2008, we do not
reach that level again until 2019 (Figure 5). Energy intensity, which
is energy use per increment of GDP, is continuing to fall. A lot of
this is a direct result of efficiency improvements. Energy per capita
is falling slightly. This trend is expected to continue through the end
of our forecast.
Figure 5. Decline of Energy and CO2 per Dollar GDP
As far as energy consumption in the United States, again we
see, as we did internationally, a strong growth in renewables
(Figure 6). In particular, we see a strong growth in biofuels. There
is an overall growth in natural gas. We see quite a decline initially
and that decline is attributed mainly to coal plants and renewables
that are already in the construction phase and coming online. So
we see a decrease in natural gas use and then it picks up again.
As you may recall, just a few years ago natural gas prices were
really high. As a result, coal became the fuel of choice for many
installations. That is now changing. Nuclear is growing and the
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Figure 6. Energy Consumption in the United States
growth is mainly because of capacity—new capacity that is being
added.
One place where we are making a little progress is in our
dependence on foreign oil (Figure 7). We reached a peak of 60%,
and that has declined in 2008 to 57% and we expect it to decline
further to about 45% in our reference case. The decline is due
to several things—one, more use of biofuels and more domestic
Figure 7. U.S. Dependence on Foreign Oil
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production. That domestic production is coming from both offshore and from onshore with enhanced oil recovery.
Most of the growth in liquid fuel supply is coming from biofuels, and that includes biofuel imports. Now biofuels are expected
to grow, but they are going to fall short of the 36 billion gallon
renewable fuel target for 2022 (Figure 8). A lot of this is because
of slow downs or cancellations of projects for cellulosic ethanol.
We still see a lot of corn ethanol; however, this is going to pick
up again, and by 2035 we expect to exceed the target. But, in the
interim, we do not expect that the 2022 target will be met.
Figure 8. Growth of Fuel Supplies
Turning to natural gas, we are, again, lessening our dependence
on foreign sources (Figure 9). Most of our foreign gas currently
comes from Canada, but, with increased domestic production and
domestic production growing faster than domestic consumption,
we are less dependent on imports. Key in this is the increase in
our resource base due to shale gas discoveries. Shale gas has really
been a game changer here.
If you look at the increases in natural gas, you can see that
production from our domestic onshore resources is declining significantly; however, shale gas is growing considerably and we also
see a big contribution from an Alaska pipeline. The economic
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Figure 9. Sources of Natural Gas
conditions are such in this forecast that a pipeline comes on in
2023. Now over the years our forecast, the timing with the pipeline,
keeps getting pushed out. This is mainly because the economic
conditions have been changing. Costs for the pipeline have been
going up. But we do expect an Alaska pipeline to come online and
we do expect a significant increase in shale gas.
As a result, we have moved from about 1300 trillion cubic
feet to more than 2000 trillion cubic feet—a significant increase in
our own domestic resources. That increase is a lot stronger than
the growth in the production, so we have significant shale gas
resources and significant natural gas in our own country.
In the case of electricity, we show a decrease in electricity
growth (Figure 10). It is still growing, but look at how quickly it has
dropped over the years: In the 1950s the annual growth was 9.8%;
the 1960s dropped to around 7.3; 1980s, 4.7%; and on and on. In
our forecast we are expecting it to grow about 1% per year. Now a
lot of this is due to efficiency improvements and also to a lessening
of demand because of higher prices.
As far electricity market shares, renewables show strong
growth—from about 9% to about 17% (Figure 11). There are a
number of reasons for this and a lot of legislation involved. There
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Figure 10. Growth in Electricity Use
are tax credits for renewables. The stimulus plan has subsidies for
renewables and there are state renewable fuel standards, so that
has helped; plus the concern over the environment has helped.
Although we model current laws and regulations—there is no
carbon legislation out there right now—we do assume that there
is a penalty for using carbon. We do that by increasing the cost of
carbon-intensive utilities. So there is a cost associated with building coal-fired plants, and that is to reflect the industry anticipation
of some kind of legislation.
Figure 11. Projected Market Share
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Most of the added coal is already under construction. We
see very little new coal capacity coming on that is not already
in the works. As a result, the coal share drops from 48.5% to
43.8%. The non-hydro-power renewable sources—mainly wind
and biomass—make up about 41% of the renewables. Solar
has a strong percentage growth but still is a very small portion of our entire generation. Geothermal and waste are also
quite small.
Assuming that there are no new policies, growth in energyrelated carbon dioxide emissions is really driven by electricity and
transportation fuel use (Figure 12). Over the forecast period, there
is an 8.7% growth in our carbon emissions. Most of this is due to
the electric power and transportation sectors. When we look at
the proposed legislation, you will see that most of the results are
achieved in the electric-generation sector and not in the transportation sector. That is mainly because in the electricity generation
sector we do have choices and you can switch to natural gas or go
into renewables.
In the transportation sector, without some big technological breakthroughs, we are pretty much dependent on liquids, to
include biofuels. There has to be some major breakthrough and
Figure 12. Drivers of Growth in Energy-Related CO2 Emissions
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there has to be change in infrastructure to increase benefits in the
transportation sector.
I will now discuss the EIA analysis of the American Clean
Energy and Security Act. [3] As of now, our forecasts assume current laws and regulations. What if policies change? As you know,
there is a lot of policy that could change. In the past, we have had
investment tax credits, renewable portfolio standards, production
tax credits, renewable fuel standards, CAFE standards, and all of
these have made a difference. There is a lot of talk about carbon
legislation; nothing has made it all the way through, however.
There is talk about a cap and trade program. EIA did an analysis of
the implications of the American Clean Energy and Security Act,
also known as the Waxman/Markey Bill after the representatives
who were the chief supporters.
There are many provisions in this bill. In particular, it calls
for a reduction in covered greenhouse gas emissions of 24.6 billion metric tons over the 2012 to 2030 period. In our analysis, we
examined six basic scenarios (Figure 13). Detailed results for those
scenarios are available on the EIA website. That website also provides a link to the testimony of our Administrator, Richard Newell,
regarding the bill.
Figure 13. Six Main Cases in EIA’s Analysis
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The baseline for this forecast was the Annual Energy Outlook
2009, updated to include the stimulus bill. This was done before
the Annual Energy Outlook 2010 came out. As I mentioned earlier,
we want to look at the relative impacts, not just the numbers. The
change could be higher or lower than the actual reduction based
on how much use is made of offsets. Accordingly, our results show
bands in which we could get more or less.
The basic case is an integrated analysis of all of the provisions that we modeled. The “zero bank” case is the same as the
basic except that we do not allow any carryover of allowances
beyond 2030. This is a proxy for major carbon energy technology breakthroughs in which industries would not be as prone to
banking credits. The “high offsets” case assumes an increased use
of international offsets. Now you can get credit for domestic or
international carbon reduction. The “high cost” case is the same
as the basic in that it assumes that costs for nuclear and fossil with
carbon capture and sequestration by mass gasification are higher.
The “no international” case assumes that the international offsets
are not available. Either they are too expensive or they cannot meet
the requirements. The most restrictive case is the “no international
offsets and the limited editions of some of the better choices for
carbon.” If we look at the energy sector reductions, those are the
two bottom sections and they vary considerably with the availability of the offsets and the availability of the low-emitting generation
options such as nuclear and coal with sequestration (Figure 14).
As you can see, when we have no international and no international or the limited cases, most of the compliance comes from
actual reductions, whereas in some of the other cases a lot of these
international offsets are used.
As I mentioned earlier, the electricity sector really dominates
the projected reductions in the energy-related CO2 emissions
(Figure 15). If we look at that, the electricity sector is the green on
the top. You see a strong variation there. In the transportation sector
it is very little. If you look at the percentages for the numbers, the
electricity sector is responsible for roughly 80% of the reductions,
whereas the transportation sector only accounts for 5% to 8% of
the reductions that can be achieved with this particular legislation.
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Figure 14. Projected Energy Sector Reductions
Figure 15. Projected Reductions in CO2 Emissions
Dominated by Electricity Sector
This is because the transportation sector is 90% dependent
on petroleum. By 2030 we see a shift in generation in these cases
from the conventional coal to the nuclear renewables and fossil,
plus carbon capture and sequestration (Figure 16). Natural gas
use does grow dramatically if these other options are limited.
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Figure 16. Projected Shift from Conventional Coal
to Other Sources
If you look at the no international and the limited cases, you see
the strong growth in natural gas. You also see growth in nuclear
and in renewables. So basically what this shows is that there really
is a wide variety of alternative futures.
Capacity additions are generally dominated by a mix of nuclear
renewables and the fossil fuel with carbon capture and sequestration (Figure 17). Natural gas is more important if these options
are limited. Thus, we see a lot of renewables, especially in the
no international and the no international unlimited option cases.
Efficiency programs and high electricity prices also reduce the
electricity demand growth, and this is another key point in reducing our carbon footprint.
If you look at the growth over these different cases, the growth
in electricity demand is less in all of these cases and you see the
variation from 0.2% to 0.9% (Figure 18). Electricity prices, with
the exception of the no international and the limited case, are
pretty much around what they are for the base case, and these
prices are a little bit under what the prices have been recently. The
principal factor underlying the large increase that occurs
after 2025 is the assumed phase out of the free offsets to
carbon-emitting facilities.
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Figure 17. Capacity Additions, 2008–2030
Figure 18. Projected Growth in Electricity Use
We have assumed that the free offsets to carbon-emitting facilities will be phased out after 2025 (Figure 19). When you put in
any type of legislation like this that is going to cost money, we are
going to see a change in GDP and a change in consumption. On
the left of Figure 19 you can see the cumulative change in real
GDP, and that is from actually less energy use, and the cumulative change in real consumption. So there is a more significant
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drop obviously in the most limited case. If you look on the right
of Figure 19, we show the absolute numbers. Now the economy
is huge, so if you are looking at the absolute numbers, it looks like
there are small differences.
If you are looking at the cumulative change, the numbers look
a lot larger. So you can portray numbers however you want and
it can either look like a huge change or a small change. EIA tries
to remain neutral and present things both ways. With regard to
carbon legislation, our focus is mainly on the cost because we
cannot model the intangible benefits of emissions reductions.
Those can be inferred. So this is basically the impact of provisions
of the legislation that is up on the Hill right now.
Of course, many other options could be proposed. EIA will
most likely be called on to analyze anything that comes out, and
the analysis will be published on our website. In case you are looking for more information, we have a short-term energy outlook
that comes out every month, an annual energy outlook yearly, an
international energy outlook yearly, the latter two of which I have
Figure 19. Projected GDP and Consumption Losses
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touched upon, and a monthly energy review. With that, I will open
it up for any questions.
REFERENCES
1. U.S. Congress, House, H.R. 2454: American Clean Energy and
Security Act of 2009, 111th Congress, 2009-2010, http://www.
govtrack.us/congress/bill.xpd?bill=h111-2454.
2. U.S. Energy Information Administration, Annual Energy Outlook 2010, Washington, DC, 2010, http://www.eia.doe.gov/
oiaf/aeo/.
3. U.S. Energy Information Administration, Energy Market and
Economic Impacts of H.R. 2454, the American Clean Energy and
Security Act of 2009, Washington, DC, 2009, http://www.eia.
doe.gov/oiaf/servicerpt/hr2454/index.html.
Q&
A
Session with
Ms. Phyllis Martin
of the questions as you’re predicting future energies, your
Q: One
natural gases, first question is does that include methane
hydrates and if it does not, is there any look at international efforts going
on with Japan, their exploration, as they’re starting to consider that in
their economy? Shell, Chevron, Texaco, BP, and Amoco are also doing
heavy exploration.
Ms. Phyllis M artin : At the present, methane hydrates are not
included in our forecast. The technology is not there right now to
bring them on economically. As far as looking at other countries,
yes, we have a whole international team that focuses on the different regions of the world and they are looking into that. We are
also looking into methane hydrates; it is just that right now it is
not incorporated in our forecast. Our forecast does not go out far
enough, really.
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sensitive are your estimated GDP losses and costs in
Q: How
general to assumptions about technological change and do
you have a sense for how those costs would compare to the benefits of the
policy changes?
Ms. Phyllis M artin : We cannot look at the intangible benefits,
as I mentioned. Those can be inferred by the fact that we are reducing greenhouse gas emissions, for example. As far as technological
development, our estimates are very sensitive to that because if we
have stronger technological development, that is what has allowed
us to do things such as bring the shale gas on. For a long time, shale
gas was not economical. Advances in hydraulic fracturing now
allow us to get the gas out of the ground economically. So technology makes a big difference. As for the transportation sector, if we
had the technology there, for instance, for electrification of vehicles, that could make a huge difference and the transportation sector could be a larger contributor to reducing emissions. But we do
not have the technology there now; we do not have the infrastructure to change from a petroleum-, or a liquids-based, economy for
transportation. So, yes we do look at different technological scenarios and if you look at our full report coming out shortly, there
will be high and low technology cases for oil and gas development
and for a number of things in a number of areas. That is what you
should look at to see the incremental impacts, and then you could
shift that over to the incremental impacts in the legislation.
I want to ask a question for clarification. I assume you
Q: First,
use the same modeling techniques in the global analysis? You
look to the effects of the economic downturn and things like that?
Ms. Phyllis M artin : Yes, we do and, in fact, what we see is
that the initial growth slowed and then picked up and then picked
up again. So the economic crisis did have strong repercussions
worldwide and that is represented in the international forecast.
also look at the implications of these forecasts against
Q: Dothe you
IPCC scenarios? The IPCC based their temperature pro-
jections on the specific scenarios that include a certain level of emissions,
and it seems that there are differences between what they expected and
your forecast, which has implications for temperature.
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Ms. Phyllis M artin : We do look at alternate scenarios in all
of the forecasts. There are many more alternate scenarios that we
look at for the domestic than for the international. When we are
doing the international forecast, we look at maybe six or seven, and
in the domestic we have probably forty to fifty alternate scenarios.
going to ask a question that I think is a little bit beyond
Q: Itheamscope
of what you are doing, but I am trying to understand
how it would be addressed. You are reflecting the loss in GDP because of
the change in the allowable energy uses, but what you are not accounting
for is the cost not incurred from things such as sea-level rise. And I am
just wondering where does this all get brought together to determine the
net economic impact of a mitigation strategy?
Ms. Phyllis M artin : Well, you are looking at things that we
cannot quantitatively include in the forecast. And one thing I want
to make clear about the GDP, it is not a loss of GDP or a reduction
in GDP; it is a difference in GDP relative to our reference case.
GDP still grows and consumption still grows in all of these cases.
So it is relative to the reference case and it is the relative impact of
putting in some of these forecasts.
have seen models of likely sea-level rise and large uncerQ: We
tainty, but associated with that would be loss of developed
territory in the United States. Is that not a quantifiable cost?
Ms. Phyllis M artin : That definitely is a cost, but it is not a
cost that we would be identifying in the forecast. You are getting
into details that would require too detailed a model to take all of
that into account. Now that is the type of thing if we wanted to
somehow try to quantify that we could develop a scenario that
would take that into account. That would just be basically a different assumption and we would associate some type of a cost with
it. So it is something that could be done, but it is something that
we have not done.
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3.2 Roundtable 2:
Energy Availability
Moderator’s Summary
Mr. Duncan Brown
My aim in structuring the energy portion of the symposium
program has been to provide you about a half day’s worth of briefings on the topic. Ms. Phyllis Martin from the Department of Energy
(DOE) began the process by explaining who uses energy, the
types of energy they use, what are the future projections, and the
The moderator is Mr. Duncan Brown, the Director of the Strategic
Assessments Office (SAO) at JHU/APL. The SAO conducts broad
ranging analyses and assessments of national security strategy, policy,
and technology trends. Mr. Brown has also served on the Navy staff
in the Pentagon as the Science Advisor to the Deputy Chief of Naval
Operations, in the Pacific as the Science Advisor to the Commander in
Chief Pacific Fleet, and in the Pentagon as the Director for Submarine
Technology. Mr. Brown also headed the Hydrodynamics Branch at the
Naval Undersea Warfare Center (NUWC) in Newport, Rhode Island.
The Branch was responsible for investigating drag and noise reduction techniques for submersibles using both numerical simulations as
well as test models in its own tow tanks and on ranges. Mr. Brown
holds a M.S. degree from Johns Hopkins University in technical management, a M.S. degree in ocean engineering from the University of
Rhode Island, and a B.S. degree in engineering science from Hofstra
University. Mr. Brown’s professional education includes postgraduate
work in National Security Studies at Georgetown. He was also a Fellow
in MIT’s Seminar XXI Foreign Politics and International Relations in the
National Interest Program and Harvard’s Program for Senior Executives
in National and International Security. Mr. Brown has received three
Navy Superior Civilian Service Awards, a Naval Award of Merit, the
Naval Undersea Warfare Center Science Award, and several JHU/APL
Special Achievement Awards. Mr. Brown is a Board Member of the
Baltimore Chapter of the American Society of Mechanical Engineers, a
member of the Board of Trustees for the Baltimore Council on Foreign
Affair, and is involved with the Boy Scouts of America.
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potential impact of climate change. So that is the first one. The
second set of briefings will come during this particular panel, and
what I am going to do is tell you how we use oil, simply just to
educate everybody because there are a lot of misconceptions out
there.
Jeff Werling from the University of Maryland will then talk to
you about the economic impacts associated with a major disruption in world oil supplies. That assessment was part of a study we
did a couple of years ago that looked at how the United States and
the world might deal with such a major disruption in oil supply of
as much as 5 or 10 million barrels a day. [1] Then, John Simpson
from the General Services Administration (GSA), and formerly of
the Rocky Mountain Institute, will discuss how the military uses
energy and ways it can save, as well as ways the United States
could substantially reduce the amount of oil that it uses.
The dinner speaker will be Professor Nate Lewis from Caltech,
who will discuss how the world produces energy, how the world
uses energy, and what can reasonably be done to change our
sources of energy from nonrenewable ones to renewable ones.
Then, first Rear Admiral Philip Cullom will describe his role as
Director, Task Force Energy and what it means for the Navy. So
that is the line-up for the energy portion of the program.
What I would like to do at this point is give you a brief tutorial
just to make sure we are all on the same page in terms of who produces oil and who uses oil and for what purposes. So in terms of
world oil production, the three biggest producers, as you can see
from Figure 1, are Saudi Arabia, Russia, and the United States. Now
a lot of people do not realize that the United States is actually the
third largest producer of oil on the planet.
The next question is who are the consumers? Well, the answer
is that the United States dwarfs everybody else (Figure 2). The total
world usage is between 78 and 80 million barrels a day. It was
a little bit higher back in 2007/2008, but because of the global
economic crisis it has dropped somewhat. But basically in rough
numbers, the United States consumes about 20 million barrels a
day or one quarter of the world’s oil production. China is second at
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Figure 1. World Oil Production (MBD-2008)
Figure 2. World Oil Consumption (MBD-2008)
about 7.5 million barrels a day, of which roughly half is imported.
In other words, China produces half of the petroleum it uses and
imports the other half. Japan is a distant third, basically consuming
just less than five million barrels a day.
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In terms of imports (Figure 3), I told you that the United States
consumes about 20 million barrels a day, a little bit less than that
now, again, because of the global economic crisis, and imports
about two thirds of that, or about 12 million barrels a day. Japan
imports basically 100%; China imports about half.
In terms of oil experts, who are the major exporters? The two
major exporters far and above everybody else are Saudi Arabia
and Russia (Figure 4). In terms of worldwide oil flows, basically
Figure 3. World Oil Imports (MBD-2008)
Figure 4. World Oil Exports (MBD-2008)
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what you can see from Figure 5 is that much of what is produced
in the Middle East goes three places: It goes to Europe, it goes to
portions of the Middle East, and the rest of goes to Asia.
Figure 5 shows where oil from the Middle East is going. Only
a small portion of it is coming to the United States. But then, of
course, when you look at the United States, you see that we have
done a pretty good job of diversifying our imports. We get a lot of
our oil from the Atlantic basin; I will show you the specific numbers.
In terms of shipment routes, and one of the things that the Navy
has to be concerned about is a lot of what is shown in Figure 6,
much of the world’s oil flows through choke points such as straits
or canals. You can see them listed in Figure 6. The two big ones
are the Straits of Hormuz and the Malacca Straits.
In the case of the Malacca Straits, there was a study done a
few years ago by CNA that asked, “What happens if the Straits
of Malacca get blocked?” [2] The answer is you just ship things
around Australia. Doing so adds 1% to 2% to the cost, but it is not
the end of the world. That is not true for the Straits of Hormuz.
If you close the Straits of Hormuz, there is no easy way to get
the oil out of the Persian Gulf, and that becomes a major problem. Now how one would actually close the Straits of Hormuz is
Figure 5. World Oil Flows
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a whole different issue, and we could have a debate on whether it
is even possible.
As you know, there is a lot of rhetoric out there that says we
import most of our oil from the Middle East. It is not true. You can
see the numbers in Figure 7. We are basically importing most of our
Figure 6. Major Oil Shipment Routes
Figure 7. Major U.S. Oil Imports by Country of Origin
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oil from Canada and Saudi Arabia and then Mexico, Venezuela,
and Nigeria.
In terms of how the United States uses energy in total, not just
oil but in total, whether it be for transportation or whether it be for
electricity production or industrial uses, you can see the numbers
for 2008 in Figure 8. I think these numbers have changed a little
bit, but coal is up a little bit and oil is down a little bit, but they are
pretty close, within a few percentage points.
That is basically how we use energy in total. Then the question
is: How do we use oil? The reason I mention this is because when
you hear somebody say, “Well, we’re going to produce nuclear
power plants and that’s going to free us of Middle East oil,” you
say, “Well, wait a minute. How does that work?” What you have to
look at is how do we use oil. Basically, in this country at least, two
thirds of oil is actually used for transportation (Figure 9).
The other one third is basically used for industrial processes
and maybe one percentage is used to make electricity. Building
nuclear power plants does not help you get off of oil. It is just that
simple. Within the transportation sector, one third of the fuel is
used by heavy trucks and aircraft and the other two thirds is used
to fuel cars, light trucks, and sport utility vehicles (SUVs). Thus, if
you really want to reduce your consumption of oil, you need to go
after the transportation sector.
Figure 8. Sources of U.S. Energy Consumption
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Figure 9. U.S. Oil Use
If you want to go after the biggest chunk of the transportation
sector, that turns out to be cars, light trucks, and SUVs. Several
years ago we looked at what we could do to reduce energy consumption or switch to renewables. Although I cannot present the
data because it is proprietary to one of the automobile manufacturers, I can tell you that we looked at what you could do to reduce
energy use in cars, SUVs, and light trucks. As it turns out, there
are ideas on the shelf right now that, if implemented, could probably increase average miles per gallon from 25 up to about 45.
Implementing these changes would add a few thousand dollars
to the cost of a car, but consumers do not yet seem willing to pay
that price.
REFERENCES
1. Duncan Brown, Energy Workshop, The Johns Hopkins University
Applied Physics Laboratory, Oct 2008.
2. John H. Noer, Chokepoints: Maritime Economic Concerns in
Southeast Asia, National Defense University, 1996.
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3.3 Economic Impacts of Global
Petroleum Supply Shocks
Dr. Jeffrey Werling
Hopefully, by the end of my talk, you will have a better idea of
how we get the consumer interested in buying cars that get 40–45
miles per gallon. I think there is a definite way to do that. I am
going to cover two topics. First, I will identify the likely economic
impacts of a big supply shock. As part of that, I will also look at
some of factors that you might want to have considered ahead of
time to mitigate the effects of such a shock.
For my second topic, I will address ways that we can reduce
our vulnerability to energy shocks, maybe not in the next 5 years,
but over the next few decades. As we will see, many of the things
that we can do to reduce vulnerability are really the same things
that we can do to reduce our vulnerability to climate change, or at
least reduce our carbon emissions.
Let’s begin by looking at energy consumption per capita
(Figure 1). We see that our friends in Canada are a little higher than
the United States. That is because they have more energy than that
United States, but the United States is right behind them and just
ahead of Russia. So on a per-capita basis, the United States is the
Dr. Jeffrey Werling is Executive Director of Inforum. In addition to managing the day-to-day activity at Inforum, he serves as principal investigator for special projects applying Inforum modeling systems. He has
completed recent studies on the economic implications of energy policy, immigration, exchange rate fluctuations, and port disruptions due
to terrorist strikes. Dr. Werling also teaches an undergraduate course in
economic development. Previously, he held positions as an international and industry economist with the National Electrical Manufacturers
Association (NEMA), the Manufacturers Alliance (MAPI), and the
WEFA Group (now Global Insight). He received a Ph.D. in economics
from the University of Maryland in 1992.
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Figure 1. Total Primary Energy Consumption per Capita
king of energy consumption, per se. Per-capita U.S. consumption
is little more than twice that of France, Germany, or Japan.
On a per GDP basis, South Africa, Russia, and China rank highest, but the United States right up there as well (Figure 2). Using
this measure, the United States is about 30% higher than the typical European country. So you get the feeling that there probably
is room for conservation. What happens if we do have a big oil
supply shock? To find out, several years ago we did a study in
which we considered two different levels of abrupt shock.
Figure 2. Total Primary Energy Consumption per
Dollar of GDP
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The first one assumed a 4.8 million barrel per day shortfall over
a 3-month period. At the time, that was about 5% of global consumption. The second case was double that at 9.6 million barrels
per day, or a bit more than 10% of global consumption.
So, what do you want to think about ahead of time? A number
of important factors are listed below.
• Size matters: 9.6 million barrels per day is more than twice
4.8 million barrels per day.
• Duration: 6 months is twice 3 months.
• Current supply/demand equation: Is there unused capacity?
• What is the underlying casue? Military/civil strife will tend
to have a negative psychological impact.
• Did the shock appear unexpectedly or were there warnings?
• Perceptions: Is price spike temporary or permananet?
One thing is that size matters in the sense that it is a nonlinear relationship. In fact, a 10% disruption is a lot worse than a
5% disruption—the larger the disruption, the greater the economic
impact. Duration matters as well. We could live with a big disruption for a week, but once it turns into a month or 3 months or
longer, well, then the disruption is much, much greater. Another of
the things you want to think about is the underlying cause. If it is a
natural disaster then people are more likely to roll with the punch.
But if it is a terrorist event, then people are worried about what will
happen next.
Uncertainty really contributes to the disruption. What inherent things do we have in the economy that can help us roll with
this shock? The most important thing we have is the inherent resilience that comes from simply having a vibrant market economy,
which will effectively allow us to ration gasoline and oil according
to price.
As consumers, we do not like to hear that. You are going to
see some pretty ugly numbers when it comes to the price of gasoline, especially in the case of a big oil shock, but, you have got
to admit, it is going to change our behavior. To some extent, we
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are going to be able to ration oil and send it to the highest value
thing. So that is a case of inherent resilience that helps us minimize the disruption of the impact. We can also have what we call
adaptive resilience in planning ahead, things such as the strategic
petroleum reserve.
But the rest of us think we could get a piece of that as well. That
is one of the things that we do as a nation, to plan ahead. There are
other things we can do. One of the things we did when we ran this
scenario is examine which ports would be apt to lose supply. If, for
example, you cut off the Los Angeles port from supply, there are
not really any good ways to get petroleum to the West Coast. Those
are some of the things you need to think about ahead of time.
In the event of such a crisis, national leaders could just say,
“Well, we understand that the price of gas is very high” but a little
moral suasion, as we economists like to call it, can go a long way.
The President getting up and saying, “Everyone should be thinking
about carpooling and other efficiency efforts,” can be effective in
the short term. Monetary and fiscal policy, on the other hand, are
likely to have only minimal impacts in the case of a supply shock
like this; there is not a lot you can do in that sense. Some of the
important policy considerations are listed here:
• Monetary policy will focus on financial market liquidity
and stabilization. Given higher inflation, a direct reaction to
lower growth will be secondary.
• Fiscal policy effectiveness and options would be very
limited.
• Some non-price rationing might be necessary, especially
with large shocks. Examples: Reducing work/school days to
4 per week. Even–odd?
• Fuel subsidies, taxes, and surcharges
• Strategic Petroleum Reserve and associated logistics
• Distribution decisions: High prices hit vulnerable groups.
Something to think about ahead of time.
• Planning can be important; it adds to resilience.
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However, non-price rationing might be more helpful.
Government could institute a 4-day schedule for schools or for
nonessential government services. Doing such things can take a lot
of demand out of the system. But you have got to think about such
options ahead of time.
Although our supplies of oil are quite diversified, it is important
to remember that petroleum is sold on a world market. Although
the United States does not import much oil from the Middle East,
a disruption in supplies from that region will force the Europeans,
who do consume a lot of Middle Eastern oil, to bid on oil from
Nigeria or Venezuela with the likely effect of increasing the price.
Just because we rely on a diversified set of sources does not mean
that we are insulated from a shock that might happen in Saudi
Arabia or Iran. We are still going to have to buy out oil out of the
same bucket.
Given that, why do the Chinese go all around the world trying
to secure their supplies of oil? Why do they make those deals?
Well, frankly, a lot of economists scratch their head and say, “We
have no idea why they do that.” Does it really make sense for
anyone to go to war over oil supplies? Before answering that, you
need to remember that it is always going to be cheaper to buy oil
than go to war. Moreover, that applies no matter what the price is;
at least that is what I would like to convince the Chinese. But that
is what you have got to be thinking about. The shocks that we are
talking about—a 5% reduction in global supply—are big shocks,
so large in fact that promises of a dedicated supply are likely to go
by the boards.
As I said, we examined a basic disruption of 4.8 million barrels
a day or 5.5% of supply for 6 months, and then we doubled that.
In both cases, we assumed that the Strategic Petroleum Reserve
and other strategic supplies around the world would be tapped. In
the first case, the price of oil rose to $175 per barrel; in the second,
it rose to $289 per barrel during the second month following
the disruption. After that, the prices start coming down as governments tap reserves and people start to learn how to live with skyhigh oil prices.
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Both scenarios assume that at the end of 6 months we are back
at baseline levels of supply. The shock is sudden but transient shock
and thus does not last forever. But it does deliver an economic
punch; the possible economic damage includes the following:
1. Income/Demand Effects—Higher prices are an
Organization of Petroleum Exporting Countries
(OPEC) “tax” on consumers, firms, and government as revenue flows abroad. Demand reduced
for everything else.
2. Supply or Substitution Effects—Rising energy
costs reduce profits or increase prices, especially
for energy-intensive items (transportation/tourism,
chemicals, etc.). Demand for these is reduced.
3. Policy Effects—Higher energy prices spark inflationary pressure and causes monetary authorities
to tighten credit conditions. Government energy
bills rise substantially, crimping fiscal stimulus.
4. Effects on Confidence and Financial Market
Psychology—Hurt consumer and investor confidence. As security prices and household wealth
decline, the economy is weakened. Effects would
be especially strong if cause is a major geopolitical event, such as a terrorist attack.
Whenever we have big price shocks in oil, as we did in 2008,
the main source of damage to the national economy comes from
what I call the OPEC tax. It is just the fact that that extra amount
that we pay for oil is going outside our borders. It is a drain on
our income.
Because I am spending more money on gasoline, I am not
spending that money on a vacation or a new washing machine or
something else. Thus, demand for those other things is reduced.
In addition, industry, especially those industries like chemicals,
which are highly dependent on the price of oil, are hit with a huge
increase in the cost of raw materials or transportation. They lose
their competitiveness and their workers begin to lose their jobs.
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You are also going to see adjustments in monetary policy by
the Federal Reserve. On one hand they want to increase demand,
but on the other hand they have to worry about inflation. So, they
are unlikely to do much at all. Fiscal policy will also be limited
because it will not have time to react.
One of the biggest dangers in such crises is a reduction in
confidence, which affects people’s willingness to spend. If it is a
natural disaster that takes out a big facility for a while, people can
say, “Well, you know, these things happen.” However, if it is a terrorist incident, it is a confidence hit that not only affects consumer
spending, but probably the financial markets as well.
Figure 3 shows the estimated price rise for the two cases. The
dashed line shows the projection for the smaller shock. It peaks
at about $4.5 per gallon. I could probably live with that. In the
case of the larger shock, price peaks at $6 per gallon. In that case,
I guarantee you that I am going to do something different.
That money is coming right out of the consumer’s pocket, right
out of the U.S. government’s pocket. The Navy is still going to have
to operate, regardless of the price of oil. So that is a big chunk of
their operations budget.
Figure 3. Oil Supply Shocks: Estimate Increase
in Price of Gasoline
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The GDP impacts in Figure 4 are noted by the dashed and
solid lines. Both show a significant decrease. In fact, in both cases
a recession occurs in the first quarter, followed by a period of
zero growth and then healing or recovery. As you might expect,
the bigger shock sends us into a bigger recession. You lose 3%
of GDP in the first quarter and another 4% later on. Eventually,
we get a little uptake, but we are still way below the baseline
2 years later.
Employment is also hit very hard; we are losing, by the third
quarter of this thing, 5 or 6 million jobs per quarter (Figure 5). In
addition, inflation would go up to 4% for a while and then recede
a bit. Eventually, things return to normal.
So, as you can see, our dependence on foreign oil does make
us vulnerable. The way to get away from that is to diversify, not just
our sources, but also our fuel mix.
We also need to anticipate how the consumer would react,
how the government would react, and how businesses would
react. Our resilience in reorganizing how we get to work every day
and reorganizing how we turn on our light switches and that type
of thing means that we could reduce the overall impact. In fact,
one of the real strengths of a market economy is that consumers,
Figure 4. Oil Supply Shocks: Impacts on GDP
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Figure 5. Oil Supply Shocks: Impacts on Employment
whether government, business, or individuals, react to prices.
These points are summarized here:
• Economy’s dependence on fossil fuels makes it vulnerable
to supply shocks. The negative impacts of shock duration
and size are exponential.
• Petroleum is a global commodity and supply shocks entail
global economic damage.
• Across countries, damage is associated with dependence.
• Economic resilience—inherent and adaptive—reduce the
impact of shocks. Building resilience is a good idea.
• Dependence and vulnerability can be reduced in the
long run.
Let’s turn the page a little bit and ask, “Okay, well, how do we
reduce this?” or “How do we address climate change?” These are
really the front-burner issues. What we need is strong and positive
policy leadership. We also need to take advantage of our market
economy that responds to incentives. That is what we need to leverage. But how do you do that? The best way to do it is to tax carbon
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or tax energy. Whatever it is that you want to reduce demand for,
if you drive up the price people will use less. Even your children
might start turning off lights if you make it a financial proposition
to them. Among the things that could be done are the following:
• Reducing energy use and carbon emissions are front-burner
issues. National security issues are also salient.
• Strong and positive policy leadership that stresses economic
incentives, technology, and transformation of economic
structures will be fundamental. Taxes are most effective
(recycled to reduce inefficient taxes on labor and capital).
Not an OPEC tax.
• Gradual, but steady, transparent, and permanent policies
are required.
• Several potential technology “pathways” provide strong
potential.
• A long-term program of reducing fossil fuel energy dependence can make the economy less vulnerable to shocks. [1]
I find that when I talk about carbon tax people say, “Oh, no,
that’s the worst way to do it because I remember back in 2008
when the price of gas went up to $4 or $4.50 a gallon. That just
wiped out the economy.” Although it did do a lot of economic
damage, the real damage comes from that OPEC tax, the fact that
the income is going somewhere else. If you tax it, the income stays
home (Figure 6). Now where does it go? Well, it goes to the federal
government. The federal government can do stuff with that money.
I am not guaranteeing they will, but there are a lot of other policies
that you can take care of. One of the things you see people say
right now is, “Oh, we’re in the middle of a recession. That’s the
worst time to have new taxes or to tax energy.” I say no. I say this
is precisely the right time to do it. Now I am not talking about a
$1.00 or $2.00 per gallon tax on gas tomorrow. The idea here is to
start gradually but make sure everyone understands it is going to
happen and ramp it up steadily.
The beauty of doing this now is that here we are in a time of
pent-up demand, so people are going to start buying their new
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Figure 6. The Carbon Tax Myth
cars and businesses are going to start investing in new equipment
at facilities. Once this recession recedes and we have an uptick in
growth, people are going to run out and start buying things. If they
have a strong signal that fuel is going to cost more over the next
decade, they are going to buy things that conserve energy. If they
do not have that signal, they are going to go out and buy SUVs.
Thus, I think it is important that we go ahead and do that now,
gradually but steadily and transparently.
The one thing about cap and trade or doing all these command
and control things is they are not transparent to the consumers.
Moreover, the changes we make have to be permanent.
Now, I would like to turn to a study we did last year for the
Business Roundtable called the “Balancing Act—Climate Change,
Energy Security and the U.S. Economy.” [1] To conduct this study,
we convened a roundtable of experts, including one in efficiencies
in commercial buildings. Among other topics, we looked at how to
get to the net-zero-emission building. How long would that take?
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What does that take? What type of investment does that take? We
also looked at transportation and at the future of nuclear energy.
Figure 7 shows energy consumption for the business-as-usual
baseline, based on EIA projections. Then, here are some alternatives on how the mix could look based on what the experts felt
could be done. We looked at a variety of different scenarios. What
does it all mean? If we have minimal new technology, you get the
bottom line in Figure 7—we keep losing GDP out to 2050. But if
we have the policy leadership (and a lot of this is using the market,
using that carbon tax, cap and trade, what have you, charging
people for carbon), the costs are a lot less. From an economic perspective, the pricing of carbon is the most efficient way to change
Figure 7. Energy Consumption Scenarios
behavior. That is the way to avoid the cost. Okay, so what happens? Congress says, “No. We’ll avoid taxes at all cost and we’ll
reduce carbon the least efficient route.”
I will end with one more study. [2] We recently worked with
a group called the Energy Security Leadership Council, and their
thinking was not so much about climate change, but about how
we reduce our dependence on foreign petroleum so as to avoid
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shocks from abrupt changes in demand or in price. We want the
effects of these shocks, if they happen, to be less disruptive to
our economy.
In the case of energy disruptions, we identified two things that
we could do to reduce our dependence: One, we can reduce our
consumption of petroleum and energy; and, two, we can increase
domestic production. So we did a little bit of both. We reduced
consumption so that imports would go down and we expanded
supply. We also considered increasing production of alternative
fuels. Then, we looked at what would happen if we had an oil
shock in 2025 similar to the ones I discussed earlier. We found that
if we could reduce our dependence, we could reduce the shock
from a $500 billion hit on GDP to a $200 billion hit. Instead of
losing 4 million jobs, we only lose 1.5 million.
To wrap things up, what we call E3 tradeoffs—energy, environment, and economy—are now front and center. We list some of
the key considerations here:
• Energy prices, climate change, and Middle-East instability
place E3 tradeoffs on center stage.
• Long-term program of reducing fossil fuel energy dependence can make the economy less vulnerable to shocks.
• If price rationing through markets is the best way to adapt to
a shock, what is the best way to reduce long-run fossil fuel
dependence?
• Government mandates versus energy taxes (recycled to
reduce inefficient taxes on labor and capital). Energy taxes
are clearly superior.
• Well-designed cap and trade schemes indirectly impose
such taxes, although direct taxes are better.
• Good news: We can substantially reduce fossil fuel
dependence.
• Bad news: It will take a long time to make much difference.
The long-term program of reducing fossil fuel dependence,
number one, makes the economy less vulnerable to shocks. How
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do we get there? If the best virtue that we have as an economy is
our market-based system in which people respond to incentives,
let’s leverage those incentives. The best way to do that is a transparent way of showing people the true cost of energy. A carbon tax
or a cap and trade system that does that in a gradual and transparent way would be the best way to go. The good news is that we
can substantially reduce fossil fuel dependence; the bad news is
that it is going to take a long time to make a difference.
So, we need to start now. Just because we are in the middle
of a recession, we should not be saying, “Oh, no, we can’t tax
the economy.” In fact, as I said, I think it is the time that we should
do it.
References
1. Business Roundtable, The Balancing Act: Climate Change,
Energy Security and the U.S. Economy, June 2009, http://
businessroundtable.org/sites/default/files/2009.06.24_The_
Balancing_Act_FINAL.pdf.
2. Securing America’s Future Energy (SAFE), Economic Impact of
the Energy Security Leadership Council’s National Strategy for
Energy Security, 23 Feb 2009, http://www.keybridgeresearch.
com/uploads/news/41/SAFE.Study.2009.pdf.
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3.4 DoD’s Energy Challenge as
Strategic Opportunity
Mr. John Simpson
The first thing we are going to talk about is exposing DoD’s
soft underbelly and revealing how that is actually a source for
strategic advantage.
As summarized in Figure 1, the Department of Defense’s mission is at risk and huge costs are being paid both in terms of treasure and in terms of loss of combat effectiveness due to pervasive
waste of energy in the battle space and at fixed facilities that are
Mr. John Simpson has more than 25 years of practical experience and
proficiency inside and outside of government in the technical areas of
sustainable design, engineering, construction, operation, maintenance,
management, contracting, and evaluation. He has led multidisciplined,
multinational teams of professionals working with clients, cities, campuses, and military bases across the globe to provide analysis of their
resource flows to reduce costs, gain competitive advantage, create
wealth, and strengthen environmental performance through the application of a whole-systems approach that not only recognizes the
underlying causal linkages but sees places to turn challenges into opportunities. Mr. Simpson developed significant experience at the internationally recognized “Think and Do Tank” at the Rocky Mountain
Institute (RMI). While at RMI, he presented the Institute’s guiding principles and project examples as a keynote speaker at events across the
United States and internationally. Also, as a Principal, he was in charge
of numerous high-level projects working with collaborative teams of
public and private stakeholders. Mr. Simpson joined GSA’s Office of
Federal High Performance Green Buildings (OFHPGB) to apply his experience, knowledge, and skills in every aspect of sustainable design
and program implementation. Mr. Simpson is a Registered Professional
Engineer and a LEED Accredited Professional. He holds a master’s degree
from Stanford University and a bachelor’s degree from the University
of South Carolina, both in civil and environmental engineering.
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Figure 1. Energy: DoD’s Soft Underbelly
almost totally reliant on our nation’s highly vulnerable and really
shaky electric grid. If you have read “Brittle Power,” you know
what I mean. [1] Solutions are available to turn these handicaps
into revolutionary gains in capacity at lower capital costs and at
far lower operating costs, without tradeoffs or compromise. We
propose that DoD solve this problem by focusing on endurance
and resilience.
When we talk about endurance, what we mean is how do
we improve energy efficiency and autonomous energy supply
(I’ll quote Amory here because I want to be precise) while “recognizing the need for affordable dominance requiring little or no
fuel logistics in persistent, dispersed and remote operations while
enhancing overmatch in more traditional operations”? We’re trying
to give the war fighter the ability to spend more time on station
with less vulnerable fuel supplies, to be more combat effective,
and to be less at risk.
By resilience, we mean: “During the loss of critical emissions
from energy supply failures by accident or malice, from inevitable
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to nearly impossible.” That particular quotation is also from the
Defense Science Board (DSB) 2008 Briefing. [2] An excellent overview of DoD’s energy challenge and strategic opportunity can be
found in a recent issue of the Joint Forces Quarterly. [3] The article
can also be found on the RMI website, www.rmi.org.
In Afghanistan, our forces use 5-ton air conditioning units that
are powered by generators that consume a gallon of fuel each
hour. Cooling 120 tents for one day consumes 68 barrels of fuel
that must be delivered by truck over the Khyber Pass. Those trucks
are typically organized into convoys that stretch for 3 miles and are
extremely vulnerable to being attacked by the Taliban.
With that in mind, the ideal expeditionary force (and, again,
this is Amory’s take on it) is “like a Manx cat” (Figure 2). If you
are familiar with the Manx cat, you know that it has no tail, which
would make it the ideal expeditionary force. In our case, we will
need to have a stretch goal because we cannot get to “no tail.” We
want to use efficient and passive or renewable technologies that
take care of tasks such as cooling tents, powering up chow halls—
doing what we need to do by using the energy in the passive and
Figure 2. Manx Cat Analogy
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most efficient ways. We want to be able to do without generator
sets and fuel convoys. We want to be able to turn the tail into trigger pullers and thereby multiply our force. In a sense, we grow
stronger by eating our own tail.
As an example of this approach, DoD’s Energy Surety Task
Force recently spent $140 million for 17 million square feet of
spray-on insulating foam for use in Iraq. The foam was sprayed
onto the uninsulated tents used by our military so that our troops
could be comfortable without needing to set their air conditioners
at full throttle. Given a (nearly) fully burdened cost of fuel of some
$13.08 per gallon, the resulting savings in fuel use paid off the cost
of the insulating foam in about 70 days.
Unfortunately, we do not usually buy endurance. When we
designed most of our military systems, we assumed that energy
on the battlefield would be free, that it would just appear there,
and that it would be invulnerable. Now that we know better, we
need to value that fuel at 1–2 orders of magnitude over what we
already have.
So what are the hidden costs of fuel in the logistics? If you
start at the beginning, about half of DoD’s personnel and a third
of DoD’s budget goes toward procuring, storing, and delivering
fuel. Fifty percent of the tonnage moved when the Army deploys
is fuel. The annual increase in fuel cost has risen by 2.6% per year
on average for each on the past 40 years. The cost is expected to
grow 1.5% per year up through 2017.
So that’s where we come to the concept of fully burdened cost
of fuel (Figure 3). We want to get at the fact that fuel does not just
appear where you want it or need it. It has to get there through
some means. Our aim is to count all the assets, the activities that
would not be needed or could be reassigned to other tasks if a
given gallon need no longer be delivered in theater.
According to the recent DSB study, improvements in military
energy efficiency provide benefits in five areas. Improvements can
reduce the need for force protection because we’ll need to protect fewer fuel trucks. Improved efficiency serves as a force multiplier by freeing up convoy guards to become combat operators.
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Figure 3. Fully Burdened Cost of Fuel
The bottom line for DoD is fewer casualties, more effective forces,
and a safer world.
So, where do we look when prospecting for energy savings?
Let’s start with DoD’s biggest fuel consumer—military aircraft.
They use about 73% of DoD’s petroleum. Reducing aircraft fuel
use by 37% would equal the total fuel used by all the land forces
and the maritime forces. Is that practical? We think it is very simple
because 60% of the Air Force’s fixed wing aircraft are based on
designs that are 50 to 60 years old. Nearly all of the vertical lift
aircraft are based on designs that are 30 to 50 years old. Replacing
these with more modern designs could yield savings of 50 to 80%.
The greatest gains in combat effectiveness will come from fuelefficient ground forces, land and vertical lift platforms, land warriors, and forward operating bases.
The farther downstream we can improve efficiency, the
greater will be the overall benefit. For every gallon of fuel that the
Army uses, for example, they spend another 1.4 gallons getting it
to the front line forces. The British army says that they consume
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7 gallons of fuel to deliver each gallon to their operational forces.
See Figure 4 for a summary of these points.
What I am doing at GSA is trying to be a catalyst to leapfrog
fuel savings into the civilian sector. The civilian sector uses 50 times
more fuel energy than does DoD, which is the government’s largest
single customer. The civilian sector has still been driven in the past
to GPS, the Internet, and other aspects that started within DoD. If we
can do the same for fuel energy savings and fully burden cost of fuel,
that will drive the actual biggest fuel user in our economy, which is
the civilian sector.
We need to come from radical clean-sheet design initiatives
rather than an incremental approach. That is what Amory emphasizes again and again. For too long we have gone after incremental savings, optimizing things as a single system versus optimizing
the system. When you optimize the mechanical system and the
electrical system and the fuel system and the propulsion system,
you invariably fail to recognize that a little less efficiency in one
portion can breed 10 times the efficiency in a more energy-saving
capable system.
We do not want to assume diminishing returns or tradeoffs.
They are generally signals of poorly stated design problems. None
of the briefs presented to Amory and the DSB included discussion
of the tradeoff between design efficiency and force protection.
Figure 4. Energy Savers: Where Do We Look?
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To look at that, you can go, again, to RMI’s website. You can go
to Winning the Oil End Game, a Pentagon- and Office of Naval
Research (ONR)-funded report, which is discussed below.[4]
Now let’s turn to oil. Winning the Oil End Game, as I said, was
a 2004 road map to getting the United States off imported energy
by the 2040s, led by Business for Profit. You can download it at
the website. It was an ONR and Office of the Secretary of Defense
(OSD)-funded, peer-reviewed work that Amory completed and has
been giving away. Figure 5, from Winning the Oil End Game, shows
that through concentrating on efficiency first you are going to save
half of the oil that we use right now. Then, by substituting advanced
biofuels or natural gas, you get the other half of what we currently
use. It is in the road map. Download it for free. The projected savings are actually a conservative estimate because they assume the
hidden costs are zero and that the cost per barrel of oil is only $26,
which is a fifth of what we are paying per barrel right now.
The last two presentations stated that 70% of our oil is used
in vehicles. By making vehicles lightweight, slippery along the
road and through the air, and giving them an advanced propulsion system, they can get 94 miles per gallon. If you look at how
your vehicle uses fuel while you are driving down the road, 87%
of the fuel energy never reaches the wheels because of engine
losses right away. Conventional combustion engines are very
Figure 5. U.S. Oil Use and Import, 1950–2035 [4]
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inefficient. You have idle losses, drive train losses, and accessory
losses. Then you have aerodynamic drag and rolling resistance.
Accelerating and braking resistance make up the last portion. Only
13% of the energy is used to move the tractive load. After more
than 100 years of designing motor vehicles, only 6% of the energy
goes into accelerating your car. Of that, only 0.3% is moving you.
At least two thirds of the fuel use is caused by the weight of the
car (Figure 6).
Each unit of that energy saved at the wheel saves 7 to 8 units
of fuel in the tank, 3 to 4 with a hybrid. So the first thing we have
to do is make the cars radically lightweight and then decompound
their mass. The way RMI goes about this is through something we
call institutional acupuncture. RMI spent $4 million over 3 years
leading the consolidated shifts in these six sectors. Boeing did it
with the Dreamliner. Walmart reduced the fuel used by its heavy
trucks by 25% in 2008 and is looking at saving 50% this year just
through the redesign of their trailer system and adding aerodynamic
Figure 6. Fuel Energy Used by Vehicles
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features to all of their trucks. In 2008, the military emerged as a
leader in getting the United States off of fossil fuels.
Cars and light trucks are the slowest in terms of achieving
energy efficiencies, but they are finally changing. The American
automobile manufacturers are now implementing the lessons they
have learned. To reduce car weight, Ford is using some of the
carbon technology created by Boeing.
So RMI, with its partners from Ford to Walmart, from Boeing
to the Pentagon, has looked at all six sectors. As it turns out, three
or four of those six sectors have already passed the tipping point,
which means that there is a lot of hard work to be done but it is
going to get easier from here on out.
To see that evidence, you should look at the Wall Street
Journal’s recent reporting on Exxon-Mobil’s agreement with many
of the private government forecasts predicting that gasoline use
will have peaked in 2007. [5] We may have reached peak oil not in
supply, but on the demand side—a very positive indicator. Look at
world oil, which is projected to peak in 2016 and then fall by 2030
to 8% below today’s level and 40% below the consensus forecast.
We are now going to move into the next sector of “reinventing fire,” which is the electric sector. We know that 70% of U.S.
electricity is used in buildings, which leaves 30% being used by
industry. Over 20 years ago, RMI assessed over 1000 energy-using
technologies and found that three quarters of the electricity used
in these technologies was wasted. Since that time, the efficiency of
technologies using electricity has increased greatly and it continues to increase, but its rollout and use still lag behind its increases
in efficiency.
The most important thing that RMI found in this study was
that the integrated design philosophy was the biggest factor lacking in achieving the efficiencies that we need to lead us into the
future. Amory’s house in Snowmass, Colorado, was built in 1984.
It is a very unique building, but it was a test concept back then for
building a home at 7200 feet elevation where annual temperature
readings vary from –47°F to over 100°F. He has no heating or air
conditioning system, just a heat exchanger with a small fan that
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moves air through the building. Thanks to solar panels, the house
produces more energy than it consumes. The house also includes
a greenhouse, where, in the middle of the winter with no heating
or air conditioning, Avory has grown bananas for 32 consecutive
years. There is really nothing within the home that does not have at
least three functions; one important structural component provides
12 different capabilities.
Using that proof of concept and the theories of integrated
design, RMI recently worked with Jones, Lang, LaSalle, JCI, and
the majority owner of the Empire State Building to do the business case analyses for a retrofit of the Empire State Building. That
retrofit is underway. It is projected to reduce energy use by 38%
to 40% with a 3-year payback. It has some really unique ideas
within the system. There was some out-of-the-box thinking. They
actually went across the street, shot the building from outside with
thermal imaging, and found that every steam radiator within the
building had a heat signature outside the building. Using a 38-cent
($0.38) piece of reflective material behind each one of those radiators erased that signature and greatly increased the efficiency of
the building.
Another out-of-the-box concept was to take a floor of the
Empire State Building and turn it into a window manufacturing
facility for Super Windows. They are now in the process of replacing 6500 windows in the building. All of the replacements will
be operable. When we looked at putting that together with better
lights and better office equipment to cut the peak load by almost
a third, we found that we tunneled through the cost barrier that
had been the original concept of what it was going to cost for this
retrofit. We started by doing the windows, placing thermal barriers behind the radiators, and installing a number of other packaged retrofits. These improvements reduced the energy demand so
much that when it came time to replace the chiller plant, we found
that we did not need to tear up 5th Avenue. We did a simple retrofit
in place. Doing that led to the $4.4 million in annual savings and
operating expenses. These savings, as well as others, are illustrated
in Figure 7. But this case is not unique. The Empire State Building is
a great example, but we have done other similar things. There is a
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Figure 7. Empire State Building Retrofit Savings
building outside of Chicago that was doing a 20-year curtain wall
replacement and we saved 75% of its operational energy, which
made the payback for this retrofit negative 5 months.
What invariably happens when people start to look at efficiency improvements is that they reach a cost-effectiveness point
above which they are not willing to go. However, if you use integrated design principles and look at the things that you can start
leaving out by going beyond that—by super-insulating; changing
out Super Windows; examining whether you can downsize your
chillers or eliminate a back-up; determining whether you can get
rid of pumps, pipes, fuel delivery systems—then you actually end
up tunneling through the cost barrier to get to a point at which you
do have that negative 5-month payback (Figure 8).
It is interesting that about 60% of the world’s electricity is used
in motors and about 30% of those motors drive pumps and fans.
A normal, typical layout of an industrial plant has pipes that seem
to bend every which way. Why is it laid out like this? It’s tradition.
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Figure 8. Integrative Design Returns
People lay out their equipment first, then they tell the pipefitters,
“Come on in and connect it up,” and you end up with a spaghetti
mess. RMI has found that by doing the piping layout first and then
adding the equipment intelligently saves 69% over the base case
with lower capital costs by having short, fat, straight pumps and
smaller pumps.
As another example, let’s look at transmission losses (Figure 9).
If a coal-fired power plant produces 100 units of power, fully 90%
of that is lost along the transmission lines by the time it reaches end
Figure 9. Energy Efficiency: Start Downstream
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users. They are able to use only 10% of the 100 units of power generated at the plant. Saving a single unit of power through conservation, efficiency, or reduction of load will yield a 10-fold reduction
in the amount of power that needs to be generated. If we can save
5 units of power, then we will need to generate only 50 rather than
100. That is the whole concept behind 10× engineering.
Figure 10 is an example of Amory’s typical graph out of
Winning the Oil End Game. What Figure 10 is really about is how
the world is moving away from big, central plants to smaller combined heat and power and distributed renewables. In this study we
found that about 16% (or one sixth) of the world’s electricity right
now is being generated by combining power plants and renewables, whereas nuclear reactors produce only 13%.
Our goal should be to apply these concepts across the grid,
especially as part of DoD’s net zero initiatives. We should move
to distributed generation and advanced renewables. By doing so,
DoD and the U.S. government, including GSA, will create the
market pull to make photovoltaics come online. Those devices
are currently only 13% efficient, but if we can get closer to the
current theoretical maximum of 35% (or perhaps higher) over
the next 10 years, our nation can get off oil and imported energy
Figure 10. Global Generating Capacity
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through the use of distributed renewables and an intelligent,
smart grid.
Figure 11 is an example of the antinuclear graph that Amory
uses. It shows distributed renewables. It has 100 billion dollars
of private capital last year and added 40 billion watts, whereas
nuclear has zero. In fact, electricity output growth from nuclear
power may never catch up to photovoltaics. The micro-power revolution is increasingly being led by China.
If we want to turn the pyramid on its head, RMI’s vision is that,
through use of efficiency, renewables, and distributed generation,
we can take our traditional energy pyramid, which has the majority
coming from coal, nuclear, natural gas, and oil, and make it look
a lot more like that (Figure 12). Two key policy changes that can
help us do that are “feebates” and the decoupling of shared savings (Figure 13). Feebates are a combination of a fee plus a rebate
for energy-efficient cars, thereby creating a revenue-neutral, sizeneutral, more profitable system for automakers. They make more
effective use of fuel taxes and efficiency standards. This approach
is already being used very successfully in France.
Figure 11. Nuclear Power’s Market Collapse
Is Good for Climate and Security
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Figure 12. RMI’s Vision
The idea behind decoupling and shared savings is to provide
an incentive for energy suppliers such as the electric grid to benefit
if we use less rather than more energy. Currently, the electric grid
is set up so that it is paid more if it provides you with more energy.
There is no incentive for them to help you save energy. Thanks to
Figure 13. Key Policy Changes
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the rebate, manufacturers are going to give you for a better refrigerator or a better car. To similarly incentivize energy providers,
we propose a bonus system that pays them more for saving more
energy, kind of like performance contracting. One of the big myths
is that this is not happening. Well, it actually is. If you look at the
United States, use of coal and oil fell in 2006. If we paid more
attention to it, we could make it fall even more. The requirement
that solutions must await global agreement is simply not true. It is
China’s number one priority.
Some argue that increasing the price of carbon fuels is an
essential first step. Yes, it would be helpful and desirable but it is
not essential. What we really need is the price effect. We have to
be able to bust those barriers. The ability to respond to price matters more. Tax subsidies and mandates and other instruments such
as the car feebates, decoupling, and savings that I just described
are more effective and attractive.
Public policy is not the only or even the strongest key. The best
approach is to rely on innovative, competitive strategy, technology
and design—all from businesses co-evolving with civil society and
a more dynamic system. We know that currently we tend to rely on
design pull for innovation. What we are advocating is a new design
concept that is integrated to push and pull. We want to define the
end point, develop the targets, and do some risk management. The
GSA, where I now work, is serving as a green proving ground for
the government. We intend to bleed a little bit to get the technologies over the tipping point, provide the economic insight, and build
customer relationships.
I’ll close with one of Amory’s favorite quotes from Marshal
McLuhan, who said: “Only puny secrets need protection. Big discoveries are protected by public incredulity.”
REFERENCES
1. Amory B. Lovins, L. Hunter Lovins, Brittle Power: Energy Strategy
for National Security, Brick House Publishing Company, 1982.
Chapter 3 Energy Imperatives: Part I
141
2. Defense Science Board Task Force, More Fight—Less Fuel: Report
of the Defense Science Board Task Force on DoD Energy Strategy,
Feb 2008, www.acq.osd.mil/dsb/reports/ADA477619.pdf.
3. Amory B. Lovins, “DOD’s Energy Challenge as Strategic
Opportunity,” Joint Forces Quarterly, 57:33–42, 2nd Quarter
2010.
4. Amory B. Lovins, E. Kyle Datta, Odd-Even Bustnes, Jonathan G.
Koomey, Nathan J. Glasgow, Winning the Oil End Game:
Innovation for Profits, Jobs, and Security, Rocky Mountain
Institute, 2004.
5. Keith Johnson, “Green Ink: Forget Peak Oil; Peak Gasoline is
Already Here,” The Wall Street Journal, 13 Apr 2009, http://
blogs.wsj.com/environmentalcapital/2009/04/13/green-inkforget-peak-oil-peak-gasoline-is-already-here/.
Q&
A
Session with Panelists
a correlation between energy consumption and stanQ: Isdardthereof living
comparing the United States and Europe?
Dr. Jeffrey Werling : Well, I would have to say no in many
ways. The standard of living in France and Germany is pretty
“small.” The French tend to live in smaller houses, they tend to
spend a lot less time in motor vehicles and more in mass transit,
and they hang their clothing rather than dry it in dryers.
Q: Is the standard of living different on a per-capita basis?
Dr. Jeffrey Werling : Per-capita income in those countries is
about 85% of what it is in the United States, but they also work
about 85% as much as we do. So it is a matter of taste. Income
distributions are, however, very different in these countries. The
highs are lower and the lows are higher than in the United States.
But I would say that they have what I would call a pretty comparable standard of living at a lot less energy consumption per capita.
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consideration been given to the effect on U.S. oil conQ: Has
sumption and the shifting of some portion of the transportation sector from liquid fuels to compressed fuels such as natural
gas? What do we do about the required investment in compressed fuel
infrastructure?
Mr. John Simpson : That was actually one of the issues we had
at Camp Pendleton. We had a number of liquid natural gas vehicles, but the infrastructure was not there to support them. Then,
once you traveled off base, and it is a very large base in Southern
California, the infrastructure was truly not there. We had a number
of times when Marines had to be retrieved by tow trucks. I think
the Pickens Plan, if you read that, focuses a lot on that missing link.
Infrastructure is the true enabler for that option.
the United States simply shift its foreign dependence
Q: Does
from oil to other natural or material resources if it moves to
alternative fuels?
Mr. John Simpson : Mark Jacobsen from Stanford makes the
argument that we would, in fact, be doing just that. In order for us
to shift away from foreign oil to renewable energy, we would need
to increase our use of materials such as tellurium and cadmium.
Unfortunately, the mines for some of these materials are in China,
India, Australia, and Venezuela. So if you follow that premise, the
answer is yes. But, we are trying hard to develop new technologies
and new materials so that we do not end up placing ourselves in
the same position that we are in with petroleum.
the energy initiatives being proposed proportionate in
Q: Are
magnitude to the energy vulnerability problem?
Dr. Jeff Werling : The one thing that has come up again and
again is that there is already a lot of technology out there. Duncan
Brown told us that we can make cars that get 35 to 45 miles per
gallon such as those that are routinely driven in Europe, but the
American consumer is not willing to pay the price. The reason
that the consumer is not willing to pay more for a fuel-efficient
vehicle is because he is still paying less than $2 per gallon for fuel.
But if we paid European-style prices for fuel, we would be driving European-style cars. There is a lot that can be done right now.
Chapter 3 Energy Imperatives: Part I
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I think people could argue about whether we are doing enough
basic R&D, but we are seeing this administration wanting to spend
a lot more on research. Unfortunately, a lot of that never gets to the
market unless the incentives are there.
are political and institutional resistance within DoD
Q: How
overcome with respect to energy attitudes and actions?
Mr. John Simpson : I think that was the thrust of getting this into
the QDR. While some people say that no one pays attention to the
QDR, I think it is beneficial to get on paper as a goal. We need
to consider the fully burdened cost of fuel as a key performance
perimeter when we procure new systems. Requiring that fuel efficiency be a key performance perimeter does that. On the other
hand, there is obviously still a lot of inertia that needs to be overcome. But now, we have direction coming from the top, from the
Secretary, from the upper levels in the Pentagon’s E-Ring. It is going
to take time given DoD’s large size, but once the decision is made,
that’s all it takes because it has the capability to move with velocity. What we are looking for in GSA and everywhere else is that
velocity. That is what we hear out of the White House every day.
I look at the analyses done by the Congressional Budget
Q: When
Office (CBO) and otherwise, I see that their assessments do
not account for the healthcare costs imposed by use of fossil fuels. The
National Academy of Science said last September that the healthcare
cost related to our burning of fossil fuels is roughly $150 billion a year.
The CBO does not count the productivity benefits that come from greening buildings which, depending on which analysis you look at, is a 5%
to 15% improvement in worker productivity or in school performance.
If you start to take a look at all the factors that are not included in the
CBO analyses, won’t you end up having that –4% impact turn into a
positive 5% or 10% benefit without even considering the avoided risk of
climate change?
Mr. John Simpson : The argument against including such costs
is one that RMI has battled against many times. We found that
if you can make the case based simply on absolutely-certain-tooccur costs, which we can, then we create a convincing argument
no matter who is in power. When you delve into the quality-of-life
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realm, you tend to split the country in half because a lot of people
love the qualitative stuff and they will absolutely buy into that, but
the other side throws the flag every time you do it. So that is why
we just try to make the business case.
was impressed by your assessment of possible energy cost
Q: Isavings
for the Empire State Building. Has anything similar
been done for a ship, either a warship or a commercial ship?
Mr. John Simpson : Yes. Avory Lovins, working under Secretary
Danzig, carried out such an assessment for the USS Princeton
(CG-59), in which he looked at the hotel loads and identified ways
to improve efficiencies there. RMI is currently looking at another
ship. So, yes, it has been done.
warfighters have expressed concern that being forced
Q: Some
into energy conservation measures is going to take away from
war fighting capabilities. Would you comment on that?
Mr. John Simpson : Well, yes. Warfighting capability will
always be number one and it will always be the trump card, for
the same reason that in the upcoming legislation during which we
are going to measure greenhouse gas there is an exemption for
tactical forces. The mission will always come first for DoD, and
we understand that, but at the same time we disagree that improving efficiency will degrade capability. The DSB report showed that
improving efficiency imposed no cost whatsoever to mission capability and that actually, by increasing endurance, efficiency actually
increases mission capability.
As an example, consider a tank sitting on a corner in Fallujah
waiting for something to happen. Right now it has to spool its jet
engine burning JP8 the whole time to keep the crew compartment
cool. If we put a package unit on the tank with a small, efficient air
conditioning system, then we can save a lot of fuel because the big
jet engine burns 2 or 3 gallons every 10 minutes. Then if you need
to shoot, move, or communicate, you will have all that unused fuel
in your tank and you will not need to call in a refueling truck and
place its crew in danger. So it actually enhances the mission. That
is our position.
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Dr. Jeff Werling : I would have to say that picture of the convoy going across the Khyber Pass convinced me.
question is related to building construction. DoD is doing
Q: My
some really great things with regard to energy efficiency.
However, we are not seeing that translated into the private sector. We
have not heard anything about constructing cities that are more walkable. Do you see any moves afoot to move in that direction? I know in my
community specifically I do not see any of that.
Mr. John Simpson : Absolutely. A good example right now is
going on in Denver with the Living City Block. Making the suburbs
more walkable would be a good thing as well. When I was in the
military, I loved living on base. You walked everywhere and everybody’s kids played together. We felt safe. It was great eating pizza,
drinking beer with my neighbors. I wish we could have that everywhere. Tons of stuff is going on in the private sector.
am a reservist and my civilian job is with NOAA. We have
Q: Iheard
today that bold action is needed, that an incremental approach is not going to get us there. But I also realize that we work
and live with a government that is based on the Constitution. How do
we achieve those bold actions in a Constitutional setting? Look at how
much energy we put into the healthcare debate.
Mr. John Simpson : One of the things that DoD has that the
private sector does not have is the Executive Order; that can be a
tremendous force multiplier. The President can sign an executive
order that tells DoD, GSA, DOE, everybody to do something and
we have to follow it. There is no filibuster, there is no voting; none
of that happens.
One of the reasons that I was hired at GSA is because the
Executive Order says that future government buildings must be net
zero. A 15-story government building that will be built in 2020 has
to be built as net zero. That is just 10 years from now. We have
nowhere near the technical capability to go into downtown DC
and build a 15-story building net zero without significant offsite
renewable energy generation. So, the Executive Order is a powerful tool. Hopefully through that, we are going to go to net zero
as our base. Fort Irwin’s driving to that for the Army. Miramar’s
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driving to it for the Navy and Marine Corps. They are going to get
there before anybody else does. And in getting there I am going to
leverage every bit of the DoD’s skill and drive to push that out into
the public sector.
the Naval Post-Graduate School. I was impressed
Q: Ibyamyourwithnumbers
for the Empire State Building. How do we
find the capability to do that to residential buildings? Most of the buildings we have are already in existence. What are the costs if you want to
make those buildings more energy efficient and how long does it take to
get a payback? Where do you find the talent to do it?
Mr. John Simpson : You’re right, there is a huge dearth in the
talent pool out there, but that is what 10XE is all about and that
is why we are working hard to figure out how to grow the talent
pool. We are trying to hire right now and GSA has found it difficult
to find the kind of talent we need. It is an even tougher job on the
residential side.
One of the avenues that we are pursuing is what is called the
Pace Bond System. Because retrofits typically have 7-, 10-, or
11-year payback periods, most homeowners are reluctant to go
into an energy retrofit because they do not know if they are going
to own that home 11 years from now.
The cost of efficiency retrofits can be paid through a Pace
Bond. You pay the bond off at a slow enough rate that the savings
in energy costs are beneficial from the outset. If you have not paid
off the bond when you sell the house, the balance is transferred to
the new owner, who will also benefit from the energy retrofit. They
will pay the rest of the payback with residential; that is the only
way you are going to get around the things that you can do on the
commercial side a lot more easily.
Dr. Jeffrey Werling : I would like to point out that the building
efficiency people will tell you that just having information can be
helpful. On the residential side, for example, some have proposed
that, just as you have a home inspection for structural integrity
when you sell, states or municipalities could also require an energy
audit when you sell your house. Potential buyers would then be
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able to see that house A is not efficient, whereas house B is much
more efficient and that it could save them this much money.
You could capitalize those savings into the price of a home.
I think it is a great idea, although it has been attacked by some. But
just getting information out there about the efficiency of a home
would be a big help.