energy efficiency and “white certificates”: italian experience

Energy Efficiency

and “White Certificates”:

Italian experience

From Energy Security to Energy Efficiency: the role of oil price

Maura Liberatori

ENEA Environment Department

[email protected]

Summary

• A little bit of history: Energy Efficiency and crude oil price

• OECD’s way to energy security• End Uses technological potential vs

market failures

A little bit of history

• Before 1973: oil, and thus energy, was accessible and affordable.

• Nobody was worried, nobody was talking about savings, conservation or efficiency

• For more information and oil prices series see: http://www.doe.gov


• 1973/74 oil shock: This first shock is usually seen as political, triggered by the Yom Kippur War and the ensuing embargo by the OPEC exporters. However it was also a demand-led shock: world demand had been growing since 1965 by 7.7% per year. Oil prices quadrupled over a quarter.


• 1979/80: A politically driven shock, triggered by the Iranian revolution, followed by the invasion of Iran by Iraq, prices nearly tripled from $15 to over $40 then settled around $38 then eased to $34.

• At 2005 dollar value, the peak of the period was about 97$ (December 1979).


• 1985/86: A counter shock when Saudi Arabia, in an increasingly oversupplied market, having cut back production to 2 mb/d in August 1985, decided to restore its market share, triggering a price war. Prices plummeted below $10.


• 1990/91: Iraq invaded Kuwait removing 4.5 mb/d of supply, but quickly replaced by Saudi Arabia and others; a brief price spike to mid $30s then collapsed on January 17th invasion of Iraq by allied forces and the announcement of release of IEA stocks—while not actually taken up, it was the signal that counted and was registered in a price drop in markets.

• 1990/91 A politically driven crisis, but the management of industry inventories played a role in dampening the price effects as did the weakened state of OECD economies at the time.


• 1997/98: Price collapsed to <$10 when in November, as the Asian Financial Crisis deepened, OPEC approved a production quota increase, which led to a price collapse. In part this was to discipline Venezuela and others for looding the market. Of critical importance in 1998 was the cooperation from Non-OPEC countries Mexico, Yemen, Oman, Norway and (perhaps) Russia in reducing production —about 3 mb/d.


• 1999/2000: OPEC announced further volume cuts; prices doubled but production levels were held, a clear sign of firming OPEC discipline aimed at keeping prices within its new $22 to $28 price band; quotas subsequently increased as prices rose to $32.


• Russian production increases dominated non-OPEC production growth from 2000 forward and was responsible for most of the non-OPEC increases since the turn of the century.


• In 2001 a weakening US economy and increases in non-OPEC production put downward pressure on prices. In response OPEC once again entered into a series of reductions in member quotas cutting 3.5 million barrels by September 1, 2001.


• additional cuts on January 2002 when OPEC reduced its quota by 1.5 million barrels per day and was joined by several non-OPEC producers including Russia who promised combined production cuts of an additional 462,500 barrels…


• oil prices moving into the $25 range by March, 2002. By mid-year the non-OPEC members were restoring their production cuts but prices continue to rise and U.S. inventories reached a 20-year low later in the year


• Problems in Venezuela led to a strike at PDVSA causing Venezuelan production to plummet

• OPEC increased quotas by 2.8 million barrels per day in January and February, 2003.

• On March 19, 2003, just as some Venezuelan production was beginning to return, military action commenced in Iraq….


• Current rise - To say the current shock resembles 1973 risks oversimplifying. - The loss of production capacity in Iraq and Venezuela combined with increased production to meet growing international demand led to the erosion of excess oil production capacity.


• In 1973, 75% of oil was consumed in the OECD region; nearly a quarter of the OECD’s electricity was generated by oil versus less than 5% today; oil intensity in OECD economies was twice what it is today.

Where are we going?

The OECD currently accounts for less than 60% of world oil demand. The other 40% is consumed in countries where the demographic and income gearing leave little scope for believing demand will collapse as much as it did in the seventies.

Unless…..

From energy security to efficiency: OECD Experiences• Following 1973 oil price spike, International

Energy Agency was created by industrialized countries of the OECD. In the first instance to cooperate and share the burden of oil supply disruptions by means of emergency stocks provisions. But it was not enough: IEA Ministers were convinced they also needed to cooperate on their energy policies, so on October 5th and 6th, 1977, meeting in Paris, they adopted the Principles for Energy Policy.

Principles for Energy Policy

• Reduce oil demand• Environmental and safety concerns• Let prices go up to encourage

conservation and alternatives • Promote and subsidize energy

conservation and fuel substitution,• Progressive replacement of oil in

power generation, district heating and industry,


• Promote the use and trade of steam coal• Reserve gas for premium uses—not for

power generation• Expand nuclear “as a main and

indispensable, element in attaining the group objectives…”

• Spend more on energy R&D directed to near term impact, new fuels, renewables


• Provide a favourable investment climate, and increase flow of private and public capital to resource development, including incentives for exploration in offshore and frontier areas.

• Develop plans to fill supply gaps• “Appropriate cooperation in

energy”

Evolution of priorities

• If we follow the evolution of the IEA’s statements since the seventies regarding energy security and the Agency’s prescriptions for its achievement, the central theme of diversity of supply persists.

1993 Shared Goals

The elements of energy security were set out in the Goals as follows:

• Diversity, efficiency and flexibility within the energy sector are basic conditions for longer-term energy security; the fuels used within and across sectors and the sources of those fuels should be as diverse as practicable…

• Undistorted energy prices enable markets to work efficiently…

1993 Shared Goals

• Free and open trade and a secure framework for investment contribute to efficient energy markets and energy security…

• Cooperation among all energy market participants helps to improve information and understanding …(and) to help promote the investment, trade and confidence necessary to achieve global energy security and environmental objectives.

1993 Shared Goals

• Energy systems should have the ability to respond promptly and flexibly to energy emergencies. In some cases this requires collective mechanisms and action…

• Improved energy efficiency can promote both environmental protection and energy security…

• Continued research, development and market deployment of new and improved energy technologies (contribute to the objectives)…

What has been done?

Oil demand by sector

Electricity demand by sector

Energy Intensity

Italy: a special case?

And Now?

• IEA and its Members are placing renewed emphasis on developing policies and measures to address energy security, environmental and economic objectives, in particular energy efficiency measures.

• See Recent meetings of IEA Energy Ministers (May 2005) and the G8 Heads of State in Gleneagles (July 2005)

…. Saving in Europe

• An ambitious goal of 20% by 2020 compared with today consumption based on several scientific studies cost-effective

• Half of this potential can be realised with adopted legislations

• Technical potential of around 40% reduction

Energy Efficiency Policy and measures

• There are several measures available to improve EE, some of them are well known, discussed and approved in the IEA agenda – Limit Standby Power Use to 1-Watt– Implement a Fuel-Efficient Tire Program– Overview of Practices to Improve Tire

Efficiency– Efficient Set-Top Boxes for Televisions

Energy Efficiency policy and measures

• As you can see the measures are related to end uses of energy, because…

• keeping the pace of technology moving, costs money and if there is an industry that is capturing the benefit there is really strong incentives to invest in energy efficient technology and make the benefit larger.

End uses and Energy Efficiency

• When we talk about end uses….• An overall improvement in energy

efficiency is achieved from a collection of many small gains,

• there is no single beneficiary who sees big direct benefits


• Various factors prevent consumers from taking actions that would be in their private self-interest, that is, would result in the provision of energy services at lower cost. These factors include:

• lack of information about energy efficiency opportunities,


• lack of access to capital to finance energy efficiency investment, misplaced incentives which separate responsibilities for making capital investments and paying operating costs,

• hidden costs, transaction costs, bounded rationality, and product unavailability.


• These factors may usefully be placed into the category which economists would define as: – market failures


• So gains in EE won’t happen until there’s a compelling economic or administrative reason for consumers to make a change.


• In Italy, we had to face economic, physical, cultural, institutional, social factors were preventing us from reaching the EE technical potential via technology diffusion.

• First legislative measures were adopted in 1976…


• Last measures have been introduced by 2001 decrees on energy efficiency, and in particular talking about end uses by White Certificates Scheme, which we believe very effective….

References

• Oil price series, US Department of Energy, http://www.doe.gov

• Oil Crises and Climate Challenges, 30 Years of Energy Use in IEA

Countries, Fridtjof Unander, IEAIEA, Energy Indicators

• http://www.iea.org

http://www.doe.gov/

http://www.doe.gov/

References

• Green paper on Energy Efficiency, Directorate general for Energy and Transport, European Union, 2005

energy efficiency and “white certificates”: italian experience

Documents

nonopec production

barrelsa little

opec production growth

oil prices series

opec exporters

response opec

historyoil prices

nonopec members