Why is energy efficiency important

Four issues will be crucial in determining the amount of energy needed in the future, and hence the amount of carbon-free energy to meet climate targets:

1. Population growth or how many people will be using energy,

2. GDP growth or how rich these people will be,

3. The fuel mix and the potential emissions, and

4. Energy efficiency or how well the fuels are used.

This chapter examines the role energy efficiency can play. We will argue that energy efficiency alone can not provide the solution to meet targets for abatement of greenhouse gas (GHG) emissions. This is because the simultaneous and interacting effects of changes in global population, growth or shrinkage in the world economy, and the proportions of various fuels employed to meet energy needs, have a much greater potential to raise or lower GHG emissions. However, we will also argue that energy efficiency is an essential part of the solution to abating GHG emissions to meet global energy demands at a realistic cost.

Changes in energy efficiency are affected by a host of technological, social, economic, and political factors. This necessitates that the processes of technological, social, economic, and political change be made an endogenous feature of any model of energy use, whether for specific activities or aggregated for the whole economy. This chapter will endeavor to elaborate on this complex problem and pay particular attention to structural changes in the economy, endogenous technical change, the social aspects of energy technology adoption, path dependencies for attaining lower levels of energy intensity, and the consequences of energy policy instruments.

Table 4.1 An illustration of the importance of energy intensity

Yearly change in energy intensity of the global economy

Energy requirements in the year 2100 (year 2000 at a base level of 100)

No change in Double population Double population population or income at same income and double income

+ 1%

4.8 9.6 19.2 13.3 26.6 53.2 36.6 73.2 146.4 100 200 400 270 540 1080

4.1.2 Scenarios for future energy efficiencies

Measuring changes in energy efficiency over long time scales is very difficult. Firstly, technological paradigms change radically over long time horizons. Secondly, there is great uncertainty as to whether energy use is improving or economic output is increasing. Thirdly, country comparisons are fraught with potential for misinterpretation due to reliance on measures of market GDP instead of GDP at purchasing power parity (PPP), and lack of knowledge of a country's energy use and economic performance. This last point is crucial as the majority of expected energy growth will be in the developing world, where the most uncertainty exists concerning both future overall development and expected energy intensities, and the vast majority of analysis and research has been carried out on developed countries.

Table 4.1 illustrates a simple numerical representation of the importance of energy intensity.1 These five scenarios produce radically different requirements for energy when extrapolated over 100 years. Also shown is the importance of growth in population and income. A more realistic calculation would show how income rising from a low base results in much larger increases in energy use than income rising from a higher base, as energy demand flattens out as we move up the income curve. This is further evidence of the importance of the future energy intensity of developing countries.

There is a wide variety of opinion regarding how much efficiency gains can offset future power needs. Estimates of changes in energy efficiency are based on both empirical and historical data, as well as modeling attempts based on theoretical constructs of the demand for energy and the resources and technologies available to provide it. The authors of the IPCC central "Business-As-Usual" scenario (IS92a) believed that an improvement in energy intensity of

1 Energy intensity describes the aggregated level of energy use for economic output. Its use and limitations will be discussed in more detail in the next section.

3000 T

Carbon Free Energy Needed to Meet a 450 ppm Carbon Dioxide Target

3000 T

Carbon Free Energy Needed to Meet a 450 ppm Carbon Dioxide Target

Figure 4.1 Model predictions of required carbon free energy for a 450 ppm CO2 target (Source: Azar and Dowlatabadi, 1998).

about 1% per year would be sustainable over the next century employing only those emission control policies internationally agreed to at the 1992 Rio Climate Treaty negotiations. Various studies model or otherwise forecast long-term rates of energy intensity decline ranging from no change to greater than 2% per year. Others point to historical precedents for rapid efficiency improvement over shorter time scales of about 3% per year in the US from 1979-1986 (Lovins, 1998).

Therefore, based on a range of answers for how energy efficient the future will be, we may need as little as 5 TW of carbon-free power in 100 years (half as much total energy as the world uses today) or more than 90 TW. In Figure 4.1, Azar and Dowlatabadi (1998) provide estimates at the 50th percentile for the amounts of carbon-free power needed in the future assuming energy intensity declines of 0%, 1% and 2% per year. This study, in agreement with Hoffert et al. (1998), indicates that sustained efficiency improvements in the range of 2% per year lead to modest requirements for carbon-free power in the coming century, while smaller efficiency gains mean an increasingly large need for such power.

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