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Regulation of Energy Use and Energy Efficiency Part 1
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Del curso dictado por University of California San Diego
Our Energy Future
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Social Issues, Economics, and Politics
Examines how energy production and use affects the economy, our wellbeing, and our heath. It will also look at how energy impacts the poorest communities, the external costs of traditional energy, and how we can regulate energy and incentivize renewable energy. Additionally, this section identifies what a Life Cyle Assessment is and how it is used with renewable and non-renewable fuels. Lastly, it looks at the United States’ past and present energy policies, and the current state of international policy on climate change.
Conoce a los instructores
Dr. Stephen MayfieldProfessor of Molecular Biology
University of California San Diego
[MUSIC]
So, thank you for having me.
I don't know about you, but I'm, I'm absolutely convinced of two things.
Is this working?
This is okay.
Good this is good.
I'm convinced of two things.
One is.
That energy and the services it provides are incredibly important, not only to
the poor, but also to growth and the dynamic economies that we have elsewhere.
That's one thing.
And the other thing is that the pollution, and the various sorts of damage that are
caused by, by producing those, those very important
sources of energy are, are killing us, right?
And so where does that leave us?
We need energy.
And it's, it's really bad for us right.
So, they put me up here to talk about regulation and
I'm going to, I'm going to spend a lot of time talking about what
Josh talked about at the very end, which is why we
economists think that prices might be a good way to do that.
Let's see if I can convince you, but along the way I'm going to try and hit a variety
of other things that we might be able to
learn from our history of regulation here in the US.
So, the first point is that the biggest
targets tend to attract the most regulation, and
so that's where we're going to look for some of the lessons, some of the examples.
The number one source of pollution for a long
time, and almost certainly still is coal-fired electric power.
Electricity is very important, we're using a huge amount of it right now;
maybe somewhat less, and, this building is pretty green, but we're using pretty much.
And some of that is coming from coal, and
second point, second target is gasoline use in transportation, okay?
So, that's actually happens to be what I studied most, and so
a lot of my examples are going to come, come from gasoline and transportation.
But the lessons we can learn about regulation apply, wherever
we want to go, whatever target we want to try to hit.
Just in case I don't get to it, the key lesson
from the economics of regulation has to do with broadness and flexibility.
Why are broadness and flexibility so important?
It's because we're looking for cheap options for conservation.
Right there's scarcity in this world if we can
conserve a certain amount of fuel, or a certain
amount of pollution reduce pollution by a certain amount
we want to do that as cheaply as possibly.
And the way to do it is to get all of the little sources,
all of the cheap little methods for
conservation that are out there in the economy.
Maybe some of them we haven't even thought of.
And of course the way to get those is to [INAUDIBLE] as broad as possible.
So, a bit more on where the big targets are.
Where is regulation coming.
And, and Think Gordon touched on.
Sorry.
Beijing is, is very difficult place to be these days if you value clean air.
Why is that?
A lot of if comes from their burning of
fossil fuels, probably most easily reflected in carbon dioxide emissions.
So, this is a good indicator of how much fossil fuel is going up.
Seems to me it was just yesterday but it was actually about six years ago now,
that China caught up to the U.S. and produced just as much Co2 as the US.
This crossing point was either in 2005 or 2006, depending on whose numbers.
You want to look at and I've kind of hidden where we are now but
you can imagine this is one of those graphs that goes off the top, alright?
China right now produces about or well, as of
2011, produced 80 or 90% more carbon than the US.
And the predictions for when it has crossed
the doubling, of US emissions [COUGH] also vary.
Most people think it happened back in 2012.
There's some people who think it's happening this year, right now.
But it's no longer an issue of, has China caught up?
It's the doubling.
Right?
So now for every ton of Co2 we put up, China puts up two.
And the other interesting thing about this is that, most
of China's emissions are from burning coal for electric power.
'Kay, more than, more than half.
Which means that, just coal and just electric power in
China is more than the entire emissions in the US combines.
All of that stuff.
Alright, so what do we know about regulating coal?
Right, so we are looking for targets if probably one of the first things we need
to do if we are worried about Co2 and if we are worried about local air pollutants.
Many of which also come from coal.
Let's think about how to, how to do that.
So in the US we've tried lots and lots of different things there's this whole
suite of regulation a lot of it has to do with making new power plants cleaner.
And mandating that they that they be
built up to particular standards, using particular technologies.
One thing we've done that's.
Perhaps been a mistake, you might argue, is grandfathering a lot of old power
plants in, and saying well we understand it's very expensive for you to retrofit.
You just built this power plant, you don't have to file
the new standards, it's just the ones that come after you.
Alright, the problem with grandfathering is that
it leaves extremely long living power plants.
There are, oldest ones, and some of the biggest ones in the
U.S. still operating were built in the late 30s and early 40s.
And they're still running today, because if they tear it down and build a new
power plant, they've gotta meet all these really
good emissions standards that we have today, right?
So China's got a [INAUDIBLE].
Another big problem with Chinese power plants, the coal ones,
is that most of them are brand-new today, right, and
so, it's very hard to decommission something you just built
or to change very very significantly something you just built.
So in spite of grandfathering and the issues with,
with coal, we've achieved incredible improvements in local air pollution
from regulation, and I want to talk about some
of those improvements next and, and how we got there.
And the last point is that, perhaps a point of some optimism, Steve
asked me to not be completely pessimistic,
it's always challenging for a economist, but.
I, I try.
So, some optimism, maybe we're actually seeing pretty substantial amounts
of fuel switching from coal to natural gas in the US
and not just which power plants we run but power plants
were actually being retrofitted to burn natural gas instead of coal.
Maybe even it's possible in China, the problem that I worry about if
we're thinking about regulating coal in
China is this extraordinary demand site growth.
Alright, there are the last few villages in China are being electrified and those
villages will soon be on their way
too factories and large uses of, of electricity.
And this extraordinary growth means that
closing any existing plant is very difficult.
Right, so, so one of the first things we can hope for
I think is that new plants start to be cleaner, start to
be natural gas, they start to be be a little bit better,
I worry some about possibilities for switching or closing all the plants down.
It's a possibility.
Just quickly to run down the gains I've already talked about
this, but basically since 1980 from 1980 to today the last.
30, 33 years.
We've cut pollution just dramatically, by a factor
of three in lots and lots of categories.
And in lead by a factor of 70 some.
'Kay?
So, the amount of lead you're breathing in today is 70 times
less than if we were sitting here at UCSD in the 1980s.
Okay, which is not even that long ago, so these tremendous
gains are possible very very fast, and they come through regulations.
Okay, so regulation, the economics immediately starts to ask about choice.
So how do we do this?
You can't just push some button, and say well we'll
regulate that dirty polluter and they'll clean everything up, right?
There's always choices, and the choices here.
The, the primary choice comes down to
either direct regulation, where you tell the
firm what technology to install, or how much it's allowed to pollute, or prices.
Okay, and prices come in many forms, so prices can be a tax on pollution.
If you don't like the word tax, prices can be a
fee on pollution but it doesn't have much different effect, but I.
Courage you to try it out on your local politician it may get somewhere.
And the, the rational for prices of course is to try, and let
prices change the way people act rather than telling them what to do directly.
Both methods work and the history has had a lot of
both, but I'm going to, I'm going to try the champion prices today.
The gains I just showed you on the last slide, most of those came from
direct regulation, just standards we told the power plants what to do, to be clean.
But, going forward if we want to make even more
significant gains in the US, and more important and we want
to save, reduce pollution or save energy or fossil fuel
cheaply in developing countries, we have to look for more efficient.
Means of, of regulation, we think we will probably find those in in prices.
So, a key kind of research question you
might've imagined how much can we reduce cost of
all of these wonderful savings we've had, if
we used prices instead of, instead of direct regulation?
And so ranking them, is actually a pretty simple exercise in, in the end.
The only thing to think about is which policies, which sets of regulation, get
all of the possible methods of conservation,
and get them in the right mix?
Okay?
The most important thing to do is find the big, big method, the
big, methods of con, conservations, obviously
switching away from coal and so on.
But there's also lots of little things you and I can do every day.
There's lots of little things, companies, and factories can
do every day to save a bit more energy.
The question how do we get all of that in one sweet, regulation?
The gold standard is a tax on pollution, the more I have thought about this the
harder it is to get away form this old cannon of environmental
economics, that is if you raise the price of an input Industry and people
are very good at figuring how to use less of something that gets expensive.
If you look at the history of manufacturing in the US.
Labor got expensive?
We figured out how to use less of it.
Right.
Energy started getting expensive, certain types.
We figured out how to use less of that.
The same is true of pollution as an input.
And the idea is simply to harness this idea.
If people are good at avoiding things are expensive, they spend a lot of time
and energy trying to figure out how to avoid things that are, that are expensive.
All right?
And so the tax, therefore, is going to feed
through to all of these different places in the
economy and affect all of our conservation choices, the
big ones, the small ones, and everything in between.
Last couple points in favor of a tax before I.
Goan is, it's very easy to broaden.
So, remember I told you, broadness and flexibility with it, the
key things to get a cheap way to, to to reduce pollution.
Broadness here is just going to be a, applying
the tax to different sectors, to different factories.
And further you can imagine harmonizing across countries in agreement very easily.
Let's suppose that we have two different countries, that
are trying to agree to solve some trans-boundary pollution
issue, or to solve a climate change problem, and
they're both trying to do it with direct regulation.
One country says well, we're going to mandate that new power
plants do this, or that some of the power plants retrofit.
You get this complicated tangle of regulations.
The other countries promising to do something.
It's really unclear how you harmonize that.
How ,how can I say I'm going to act a little more strongly,
and then I write a hundred pages of loopholes in the regulation, right,
then the other country says oh since you wrote all these loopholes in
we don't have to be so strict right because we're easy to harmonize.
We're charging $20 a ton for sulfur dioxide or carbon
dioxide you can charge $20 a ton for that right?
It's very easy, very clear to see which country is working how hard.
So, I told you my research was in gasoline, so I want to
get a little bit more applied now and down into some of the.
The actual policies we see.
What do we do about gasoline in the US?
We're worried about carbon, we're worried about imports of
crude oil, we're worried about the local pollution from it.
We have a huge number of regulations,
okay, there is a corporate average fuel economy
standard, a low carbon fuel economy standard
in California, which is just now coming online.
We subsidized particular technologies, trying to encourage or mandate
those, electric cars, hydrogen cars, battlefields of all various sorts.
The federal government has bio fuel production
photos, bio fuel mandates, so do state governments.
We subsidize carpools, we subsidize public transport,
and build, encourage more public transport, encourage more
green development in terms of trying to get
people to live closer to where they work.
All right.
Why, why are there so many, right, this is a tiny fraction of them.
Okay?
Why are there so many, regulations out there for cars, for pollution from
cars, when all we're really trying to do here is reduce gasoline use?
The reason, the key reason, and this, this goes to the, the core of the
argument for why prices might be good, it's
because there's so many ways to conserve gasoline.
Can use hundreds of ways to conserve gasoline
and for every way to conserve gasoline that's
in this list of regulations, okay write it here we try to to, build more buses.
For every one that's regulated, I can guarantee I can name you one that's not.
Alright and because there are so many unregulated ways, to
save gasoline we're missing out on a lot of cheap.
Potentially very, very economically efficient ways to, to reduce gasoline use.
And this is the case for a tax, right.
If you were to tax it or raise its price a bit, it feeds through the economy in
all of those little ways, all those little things
you can do to save gasoline suddenly become incentivized.
We got some of them, with the regulation.
We got 20 or 30 or 40 of them with
the regulation, but there's another 200 or 300 out there.
Alright, you combine trips to the store, and so on, right?
There's all these things you can do to save gas that were, that were missing.
And that's the, that's the core of the example in the context of, of gasoline.
Oh and the last point, that I should make, it's sort of
hidden at the bottom of the slide here, the other thing we
want to do if I we want to conserve cheaply, or reduce
pollution cheaply, is to make sure you get them in the right mixture.
Right, you don't want to push public transportation too hard, and not push
hard on enough on getting people to live close to where they work.
Because that's just going to end up costing you
more money to save the same amount of gasoline.
Right, maybe you want to make sure people live close to
where they work and don't worry so much about the transporting.
Again, taxes get that right.
They sort this mixture out, correctly and automatically.
So, the solution is a single tax that can encourage all these opportunities.
Why don't we have them in the US?
I think that there are probably two reasons why we
don't use prices to encourage conservation of fuels in the US.
One is concerns from often expressed from
the right about the size of government, and
taxes are likely to bring more money
into government and likely to increase its size.
And there are also concerns from the left.
About regressivity, that it's low income people are forced
to live farther out of cities, they have long
commutes they're driving older cars that may not be
as efficient, and so these taxes are also regressive.
And so in that sense they're, they're,
don't go very well politically in this country.
Bill Clinton, when he tried to pass the BTU tax discovered that the hard way.
Okay.
And it was a miniscule BTU tax, all right.
A complete non-starter.
Economics has progressed some.
We're trying to think about both of these issues,
sort of distribution and what you do with the revenue.
And it seems as though both of these concerns, could actually manage through
a single mechanism, which is a commitment of some sort to return the revenue.
And the important piece of what, what, I'm studying in my
work is how much revenue do you need to undue the regressivity?
It turns out that if you just levy your small gasoline tax.
When you think about how regressive that was, the revenue
raised is way more than enough to offset the regressivity.
Right?
You can give that money back to lower income
people in various various ways and you'll still have
lots of revenue from the gas tax left over
that you can recycle perhaps against other burdensome taxes.
Hopefully a way perhaps there is a way forward in politics here to bring in
some of the right as well, right there is a lot despised taxes out there.
And if you can tax something that is
clearly bad like pollution, and try to reduce the
amount of pollution and reduce the taxes on the
good or the taxes we feel are more burdensome.
It just seems like there's, there's got to be a way forward there.
So we'll, we'll see.
We keep hoping, we keep writing about, about these possibilities.
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