Some science-related strategic challenges (excerpt)

A report for the UK Government Office for Science

Ariel Research Services February 2013
Written by Michael Reilly +44 (0)7986599791 michael@arielresearchservices.com www.arielresearchservices.com
Prospero and Ariel by Steering for North 2012 All rights reserved

This report has been commissioned by the UK Government Office for Science. The views expressed in this report are not those of the UK Government and do not represent its policies.

Created by Ariel Research Services 3. Managing UK energy demand Summary

February 2013

Achievements in climate change mitigation policy have been disappointing partly because of a misapprehension about the ways in which humans discount future costs and benefits. If this barrier can be overcome, improving energy efficiency could be a no regrets option with additional macroeconomic benefits. Electricity demand management aims to influence the level and the timing of consumption. There are policies in place to ameliorate future electricity consumption but new analysis from McKinsey suggests there is more uncaptured potential in the residential, services and industrial sectors. Evidence also suggests that it may also be possible to shift electricity consumption from peak to off-peak periods, which would also be energy efficient. The House of Lords Science and Technology Select Committee have warned that behaviour change is rarely sustainable based on choice architectures alone and requires a variety of interventions including information provision and regulation. Policies also need to be based on trials that are subject to rigorous evaluation. Such trials have been lacking and there is an urgent need for a Chief Social Scientist to enlighten the government. Other cross-sectoral opportunities to manage energy demand include low carbon urbanisation, waste management, automation, smart infrastructure, and, possibly, universal design. Technological innovations, in particular new energy storage technologies, can also support energy demand management. Institutions have not yet evolved sufficiently to work together across sectors to address the demand-side challenge of mitigation but if they do, change could be very powerful. Discounting human behaviour When McKinsey published its iconic cost-curve for curbing greenhouse gas emissions it proved therapeutic for decision-makers stunned into inaction by the scale of the climate change challenge (Nauclar & Enkvist, 2009). Their analysis also reinforced beliefs that improving energy efficiency on the demand-side was as important as a coherent low carbon energy policy on the supply-side. Achievements, however, have been disappointing. One of the impediments to the compelling cost-benefit analysis of the Stern Review has been a misapprehension about the ways in which humans discount future costs and benefits (Helm, 2008). Few regrets Improving energy efficiency means lowering the proportion of energy that is used to produce a given output. It is likely to represent the most cost-effective policy option to mitigate CO2 emissions. Moreover, some opportunities are no regrets options, which are economically viable without the pricing of carbon. Developed countries have significantly improved their energy efficiency since the oil crisis in the early 1970s and the opportunity in developing countries not yet locked in to carbon-intensive capital stock is likely to be greater (World Bank, 2009). China has been remarkably successful since the 1980s in lowering the energy intensity of its growing economy through autocratic energy efficiency policies (Sinton, et al., 1998). There will be wider macroeconomic impacts of energy efficiency if savings are redirected into investment. Economic models suggest that consumers and businesses redirect their 2

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savings from energy costs into more productive and labour-intensive parts of the economy, resulting in additional economic growth and employment (Geller & Attali, 2005). On the other hand, there is the risk that an increase in energy efficiency could have a much lesser impact on ameliorating energy intensity because of a rebound effect in consumption by households and businesses. The risk is considered very low to moderate, and is likely to vary between sectors, technologies and income groups (Greening, et al., 2000). In the US, researchers were bemused to find that Republicans reacted to information detailing lower than average energy use by increasing their consumption (Fisman, 2010). Electricity demand-side reduction Electricity consumption is an intrinsic part of the UK energy system and - excluding the future impact of policy - it is projected to increase by around 16% in 2030 (McKinsey & Co., 2012). There are policies in place that aim to ameliorate future consumption but new analysis from McKinsey suggests there is more uncaptured potential (McKinsey & Co., 2012). Improved insulation and more efficient appliances in the residential sector could produce additional gains but it is in the services and industrial sectors where policy has much further to go. Building insulation and lighting in the services sector, and motor and pump efficiency in the industrial sector are far from optimal. Contrary to the residential sector, barriers to achieving gains in the services and industrial sectors have not been well addressed by policy. Research suggests that demand can also be reduced in the residential sector by changing behaviour. Smart meters with real-time displays that provide feedback and benchmarking residents against their peers have been successful in trials. Benchmarking relies on the psychological concept of illusory superiority or a misguided belief that we are superior to others to provoke action and if it scales up geographically it could be promising. Energyefficient technologies such as electrochromo windows and compressor-less air conditioning could also help. 160 140 120 100 80 60 40 20 0
2020 2030

Uncaptured potential Savings attributable to current policy

Figure 3.1, Electricity demand-side reduction potential, 2020 and 2030 (TWh). Source: (McKinsey & Co., 2012). Projections assume savings can be captured by policy. 3

Created by Ariel Research Services Electricity demand-side response

February 2013

Variation in UK electricity demand daily and seasonally means that, on average, the capacity being utilised by generators is relatively low. When demand does approach peak capacity, less efficient generation is used. Shifting the demand-side response from peak to off-peak periods would, therefore, be more energy efficient. There are further drivers for optimising the electricity demand-side response electrification of motor vehicles and heating and the intermittent nature of some renewably energy sources are likely to diminish supply-side flexibility. A review of evidence from international demand-side response trials in the residential sector finds that economic incentives can result in a shift on a day-to-day basis and at critical peaks, although there is a large variability in the response (Frontier Economics and Sustainability First, 2012). Automation of response, where it is possible for flexible loads such as heating and air-conditioning, is particularly effective. Some of these results may be dependent on local conditions and success may rely on having a small number of people in a household who can agree patterns of consumption. Among non-residential sectors, and not including energy-intensive industrial processes, on a given winter weekday, retail, education and commercial offices contribute most to peak electricity demand, with other sectors contributing a roughly equal share (Element Energy, 2012). Lighting and heating in buildings make up around 70% of peak demand. Assuming flexibility in hot water, heating ventilation and air conditioning systems, lighting and other (mainly refrigeration) loads, then there is an estimate technical opportunity to reduce peak hour demand by around 8-30% (Element Energy, 2012). Unfortunately, there is low awareness of demand-side response opportunities among non-energy intensive sectors, a lack of financial incentives, and, where there is some interest, an anxiety that service levels might suffer (Element Energy, 2012). Looking forward energy storage technologies (crucial of course to the aspiration of a smart grid) and automation can help optimise the demandside response. A nudge in the wrong direction In 2011 a report by the House of Lords Science and Technology Committee challenged the enthusiasm of the Government for non-regulatory libertarian paternalism (House of Lords Science and Technology Select Committee, 2011). Nudges, or choice architectures, were the big idea of one of the most discussed books of 2009 (Thaler & Sunstein, 2009). The Committee warned that, based on evidence, behaviour change was rarely sustainable without a variety of interventions including information provision and regulation. In the case of reducing car use, it stressed that suitable infrastructure (eg cycling infrastructure) was necessary to enable choice architectures. The report expressed a general concern that there was insufficient applied research to support many interventions proposed to change the behaviour of large groups of people. Pilot projects were not being evaluated rigorously because there was a lack of skills to do so at a local level. It called urgently for the appointment of a Chief Social Scientist, who would report to the Government Chief Scientific Adviser, to address these concerns.

Created by Ariel Research Services Cities of the future

February 2013

Apart from better electricity demand management and behaviour change, there are some other cross-sectoral opportunities on the demand-side such as waste management. Nevertheless, the greatest opportunity is arguably low-carbon urbanisation. Low-carbon urbanisation can enhance the potential for demand management through transport and buildings especially, but it can also enable low-carbon energy supply, waste management, behavioural change and carbon sequestration. Low carbon urbanisation depends, thus, on infrastructure. There have been calls for infrastructure design that specifically supports low carbon policies but the devil is in the detail (Council for Science and Technology, 2009). The potential gains, which depend on deft multi-level governance, are substantial. Realising these gains in a capital-constrained environment will be challenging not least because climate policy is uncertain. The front-loaded capital investment required could result in exclusive yet culturally-bland premium ecological enclaves (Reilly & Hossain, 2012). Visions of ultra-efficient homes of the future are also attractive but dysfunctional UK planning regulations and land markets means that they may not be available to enough people to matter. There is a flurry of research activity surrounding smart cities, which synthesise physical infrastructure with ICT in order to improve economic and social outcomes. But imposing automation that jars against actual human behaviour could be disastrous. Some sceptical experts insist that cities are not machines and that over-design of a highly complex adaptive system may lessen its longer-term resilience to socio-economic change (Sennett, 2012). A concept to address demand-side management, which is very rarely put forward, is that of universal design. Such design uses technology to enable the elderly who are suffering from dementia to remain in their own home for as long as practicable. Innovation in universal design is necessarily frugal. One example is a simple sensor that uses audio warnings to prevent bath overflow as a consequence of forgetfulness. Many of the applications, increasingly important for an ageing population, may lend themselves admirably to energy efficiency. Institutional evolution slow but powerful In volume I of The Origins of Political Order, Francis Fukuyama borrows Samuel Huntingdons definition of institutions as stable, valued, recurring patterns of behaviour. He compares using deep historical analysis biological evolution with institutional evolution and concludes that the latter has an advantage change can occur through cultural imitation and a disadvantage institutions are conservative (Fukuyama, 2012). Competition has also proved to be an important driver for institutional change in the past and perhaps illusory superiority could have an increased psychological influence in the future. Institutions have not yet evolved sufficiently to work together across sectors to address the demand-side challenge of mitigation but if they do, change could be very powerful. In Japan, the strength of institutional collaboration was illustrated by a demand-side intervention in 2005 (Revell & Allen, 2012). The Coolbiz national campaign was launched by the Japanese Government to encourage office workers to wear more comfortable clothes to work. If they did air-conditioning levels could be decreased thereby reducing energy demand. This 5

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behaviour though was not embedded as a social norm and there was some resistance to the campaign. Once clothing retailers and respected business people also began to promote the opportunity, behaviour began to change.

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February 2013

References Council for Science and Technology, 2009. A national infrastructure for the 21st century, London: Council for Science and Technology. Element Energy, 2012. Demand-side response in the non-domestic sector, s.l.: Ofgem. Fisman, R., 2010. Nudges gone wrong. [Online] Available at: http://www.slate.com/articles/business/the_dismal_science/2010/04/nudges_gone_wrong.ht ml Frontier Economics and Sustainability First, 2012. Demand Side Response in the domestic sector- a literature review of major trials, London: DECC. Fukuyama, F., 2012. The origins of political order. London: Profile Books. Geller, H. & Attali, S., 2005. The Experience with Energy Efficiency Policies and Programmes in IEA Countries: Learning from the Critics, Paris: IEA. Greening, L., Greene, D. & Difiglio, C., 2000. Energy efficiency and consumption the rebound effect a survey. Energy Policy, Volume 28, pp. 389-401. Helm, D., 2008. Climate-change policy: Why has so little been achieved?. Oxford Review of Economic Policy, Volume 24, pp. 211-238. House of Lords Science and Technology Select Committee, 2011. Behaviour change, London: Stationery Office Ltd. McKinsey & Co., 2012. Capturing the full electricity efficiency potential of the U.K., s.l.: McKinsey & Co.. Nauclar, T. & Enkvist, P., 2009. Pathways to a Low-Carbon Economy: Version 2 of the Global Greenhouse Gas Abatement Cost Curve, s.l.: McKinsey & Co.. Reilly, M. & Hossain, Y., 2012. The impact of low carbon policy on migration, London: Government Office for Science. Revell, K. & Allen, S., 2012. Energy use behaviour change, London: Parliamentary Office of Science and Technology. Sennett, R., 2012. No one likes a city that it is too smart. [Online] Available at: http://www.guardian.co.uk/commentisfree/2012/dec/04/smart-city-rio-songdomasdar Sinton, J., Levine, M. & Qingyi, W., 1998. Energy efficiency in China: accomplishments and challenges.. Energy Policy, Volume 26, pp. 813-829. Thaler, R. & Sunstein, C., 2009. Nudge. London: Penguin. World Bank, 2009. World Development Report 2009, Washington D.C.: World Bank.