Professor of Management Science & Engineering at The Stanford University
Michał Kurtyka: Let me first explain why I’m doing the interviews. I’m trying to prepare the climate summit that is going to take place in Katowice, Poland in December. First, there was Kyoto then Paris and right now there is Katowice, which is going to discuss their implementation and try to imagine what the future will be. It will host 190 countries, 30,000 people and we don’t know yet who will be running it, but it seems highly probable that it will be me as President, in the role of arbiter.
As President, one has to be impartial, so I’m supposed to be neutral and to help people reach consensus around an implementation package for Paris which will be the main topic. I would, however, like to put our stamp on this somehow with a few ideas that we are considering, one of which concerns the next frontier in terms of transportation, and the fact that electric vehicles are completely transformative for two industries – transport and fuel – or rather three industries, as power generation should also be included. Power generation and transmission, in fact. When we look at countries in the European Union, such as Germany which is our neighbor, we see that last year CO2 emissions in fact increased because they consume more energy in cars.
Germany has massive resources in renewables so for me it does not make sense at all and then we also have tough discussions in the European Union. Emissions are not decreasing because at the moment we have two parallel systems, so the only viable way of decreasing emissions is, in fact, through the true elimination of internal combustion engines and moving on to EVs. Then, of course, there is the big idea we already discussed when I was here two years ago, if I remember correctly. It’s striking to what extent energy efficiency is the main driving factor as you rightly observed.
James Sweeney: And energy efficiency is sort of hidden, because people are saying “energy use is still not decreasing, the use of energy is not going down”. But the economy is continuing to grow and most countries wish to keep their economies growing. Absent energy efficiency, energy use would grow along with the economy, as it did prior to the 1973 energy crisis. Without energy efficiency progress, energy use would have gone through the roof. And that’s really what has been the impact of energy efficiency – it has kept energy use under control as we work to develop clean energy supplies.
In addition, we need to see the big picture. If you start thinking about only one solution, you’re going to miss the point. Most of what happened in the United States has been a combination of technology systems and behavioral changes and overall changes in how the corporate sectors and individuals are operating and innovating. Why did that happen? It was a combination of changing economic forces, changing understanding of the riskiness of energy and carbon dioxide emissions, and changing incentives in corporations mostly coming from a combination of government communication, private citizen communication, and NGO interventions. I think anytime we try to have a single solution, we miss the point because it has been synergies of a whole group of things that have led to an innovation in our efficient use of energy. Energy efficiency has been driven by a combination of factors that have worked together even though people didn’t actually plan for these to work together. What we need to do now is understand how to harness this for the future.
MK: Yes, and you are talking about “un-planning” it. In the European Union we have this dream of programming how the future of technology will look. Public authorities can, to a certain extent, guide technologies and companies in a certain direction, but at some point economies are economies and technologies are technologies, it’s not going to happen by adopting a resolution.
JS: In Europe the mentality does tend to be different than the one here and it’s to some extent a more socialist attitude involving central planning. That is not to say that the government is irrelevant in the US, because it has very significantly created incentives, created opportunities, encouraged, created transparency, facilitated innovation.
If we look back at most of the innovation in the use of energy, we didn’t see many of them coming twenty or thirty years ago. Many were very different from what we expected. Some things we did anticipate. In 1973, at the time of the oil crisis, the average car had a fuel economy of 12 miles per gallon. There was a general consensus that had to change. At that time, people could see that it could change. Cars being produced in Japan at that time and some of the cars coming out of Europe were much more energy efficient. So you knew that the US automobile industry could change. The US Congress passed regulations requiring a steady increase in automotive fuel economy. That was one instance where the government was able to see things that could be achieved.
But few people, if any, foresaw many of the other innovations. For example, LED lights, the central government didn’t see that. Yield management of airlines has halved the fuel use per passenger mile, in addition to the halving associated with more efficient airplanes. Yield management, by keeping airplanes almost full, has led to a halving in energy use per passenger mile. When you keep the planes fuller, you have fewer planes to fly, thus saving fuel. Few or any people or governmental agencies anticipated the profound impact of yield management. That was an innovation of software and economic incentives. Another one was winglets on airplanes as a small example of improved aerodynamics. People knew better aerodynamics were needed. Richard Whitcomb, an engineer at NASA, developed the design for winglets, an idea that had been introduced many years previously. So, if you want to plan centrally for all of those things, go ahead, but don’t get in the way of the process of innovation. In the US, it seems to me, setting of the context motivated many people to be creative. When you have three hundred and twenty-five million people, you don’t need a large fraction of them being creative to invent many new ways of saving energy. That’s what I think is very powerful.
Now at the same time we do have regulations, we have appliance efficiency regulations. Interesting things occurred in the US laws in implementing these regulations. In setting the standard, there has to be what’s called a regulatory impact analysis. The government has to establish, with a high degree of confidence, that the benefits derived by the consumers from the regulatory standard will significantly exceed the costs to them. It’s a benefit-cost analysis as part of the rule-making. Margaret Taylor has done a lot of retrospective analysis of those standards. She has shown that almost all of the standards resulted in more benefits than anticipated by the regulatory analysis and that the costs were lower than anticipated, so the net benefits were even greater than anticipated. Importantly, many of the energy efficiency changes did not occur in the way that was anticipated by the government. Take, for example, clothes dryers. After the standards were applied, manufacturers re-engineered dryers. When they re-engineered their products from scratch, they ended up putting in features that they hadn’t included before, and they saved energy. They saved costs, but because they engineered the products from the beginning, they actually did better than people thought they could do, because they had to re-invent. That is, some standards, by not being too descriptive or prescriptive, set the goals; this created incentives for companies to re-define the product. The product for the most part ended up with more desirable features at a lower cost. Economists like me might say “they could have done it anyway, so why didn’t they?” And the answer seems to be very behavioral. When you’ve got a good thing going and you’re making enough profit on it, there’s very little incentive to re-engineer, to start from scratch. The regulations may change everything.
MK: On the contrary, perfect is the enemy of good.
JS: Exactly. You just sit there and you just keep going and sometimes it’s hard times that causes a change and that’s something we’ve learned with energy efficiency — the shock causes people to re-think things.
MK: The lesson I take out of it is that every time we save some energy, people will find a way in order to spend it differently. But probably on different purposes, probably on different appliances, probably on different functionalities etc.
JS: But that’s not what actually happened, because we have seen in aggregate more efficient use of energy. People said “We saved money, I’m going to use it to go to the movies or buy something” and these are the things that they bought. On average, they bought a normal bundle of goods with the money they saved and the normal bundle of goods was less energy intense than was the energy they saved. In fact, in the US, aggregate statistics show that energy use was flat while the economy grew robustly. It’s not that people have an energy budget. They have an overall budget. They spend it on other things and if those other things use less energy in the whole lifecycle, overall you save energy. That has been the pattern in the United States.
MK: Putting it differently, we say that, yes, energy efficiency will be increasing furthermore or can increase furthermore. We can imagine the number of ways we can consume less energy than we are consuming and it will perhaps be triggered by completely unplanned forces and at the same time the overall consumption of energy is growing. Why? Because people always consume something more, civilization is very greedy for energy. Can we foresee or do you foresee that at some point we will start to decrease consuming energy?
JS: Well, we actually see it in the US. Many sectors are decreasing energy use. The reason energy use doesn’t always decrease is that the whole economy grows and it’s a policy choice – do we want the economy to continue to grow or not? I personally want the US economy to grow. I would imagine you and most people in Poland want the Polish economy to grow. With the economy growing you make more things and you consume more things and that uses more energy. However, if on average the things you make or consume use less energy, you can keep energy use flat or you may have a decrease in energy use. In my book (Energy Efficiency: Building a Clean, Secure Economy) is a graph that shows US energy use changes on a decade by decade basis. It shows that there were some decades that the total energy use was declining by over 1% a year and there are other times where the energy use was growing. There were decades in which total carbon dioxide was declining, others in which it was growing. It shows how one can decompose that in terms of energy efficiency and growth of the economy and see how those are related. The three factors are 1) how rapidly the economy grows, 2) changes in how intensely energy is used in the economy, and 3) changes in how clean that energy is. And all of those things work together, with rates of change of the three being additive in determining rates of change in carbon dioxide emissions. So, you may ask, can you have times where energy use is declining? Of course. This has occurred in the US economy. I think it’s hard to have energy use declining continuously over decades, while the economy still keeps growing, because it’s a process of innovation and change. Now let’s get back to what you said about automobiles. In the US, a third of our carbon dioxide emissions are from automobiles, Europe is perhaps similar I am not sure, but we have a lot of ways of making our cars more efficient. One of them will be electrification if we can generate that electricity from low-carbon sources. If we use high carbon sources there are no benefits.
MK: Actually, there are because with the transformation of energy from oil to power a car with a combustion engine, you have an efficiency of more or less 50 percent. In an electric car you will in fact have very high efficiency and this has been calculated, even for systems with high ratio of carbon intensive generation, to have a minimum gain of 20-25 percent.
JS: Yes, I misspoke, because I actually have a dissertation student – John Taggart – who is tracing that through the entire lifecycle, including the battery manufacturer, and he gets the same answer as you just stated. What I really meant to say is that there is a really big difference between countries like China where electricity generation is mostly coal, maybe Poland, too, versus California where it is natural gas and renewables. The difference is big, but electrification of vehicles make sense for the climate each place.
Again, I think that there are three factors that work together when we think about transportation. One, electrification, two, autonomous vehicles and three, transportation as a service, mobility as a service. Think of Uber and Lyft when I say “mobility as a service”. Right now, a lot of the younger generation in the US are not buying cars. They’re using Uber and Lyft. I have a son who’s like that. He abandoned his old car and he decided it was cheaper to keep using Uber and Lyft than to own a car in Los Angeles where he lives. He and I calculated that it really was cheaper. But once there are autonomous vehicles, that eliminates much of the labor cost of Uber and Lyft. I believe that labor cost is the biggest single cost that we’re paying for with Uber or Lyft. If labor cost goes down to zero, then it’s going to be much cheaper to have mobility services with an autonomous vehicle than owning a car. So that’s going to be a major transformation.
We have started to think about the implications of that transformation. I can’t envision all changes but a few examples are that people are going to be willing to live a lot further from where they work, because they can ride in their car and do work, they’ll be connected to the Internet, they don’t have to pay attention. That means they’ll put pressure to geographically spread out cities. The greater vehicle miles will probably more than compensate for the fact that you can get the cars closer together on a highway. There’ll be more road congestion because of that. More, because there’ll be more people travelling, more vehicle miles because it’s so cheap to have your mobility and people will be commuting from longer distances, so it will probably cause more traffic congestion.
MK: There is another factor which is related with energy efficiency for cars. At the moment, we have one person, one single person travelling in the majority of cases in a car and in autonomous vehicles you can also imagine a world in which the number of persons per vehicle or per capsule is optimized in the same way as in planes.
JS: Why would they do that? I know some services may want to do that but now if it’s cheap to get your own car, if it costs half as much now to have the car to yourself, what’s the incentive for individuals to share?
MK: But that would be shared by Uber, for example, so Uber would provide us with capsules, in which, for example, when you are going or we are going to work, it will automatically take one or two people on the same route.
JS: You could ride share now, but people aren’t doing it to a large extent. With autonomous vehicles, it’s going to be cheaper to drive all alone than it is now. If it’s cheaper to drive all alone and there’s less savings from carpooling, why would you do it? I think it’ll move in the opposite direction and I think more people will drive on their own. I don’t know, but the one thing that I’m confident about is if I had an investment in parking garages, I would sell off that investment, because why would anybody ever park their car? When going to meetings, they would either go with an autonomous Uber that then leaves, so they don’t have to park it, or if it’s their own car, they’ll just tell it to circle for the next hour which is cheaper than a parking garage. If they are going to work for the entire day, they would use an Uber or Lyft, or would send their own car away to find free parking. I think that this is going be a total revolution and I don’t know the dimensions. Those are only some of the dimensions, but I think there is as much opportunity to make things worse as there is for making things better. There is a lot to think about.
MK: So that’s the first – transport as a service – and then there are two more that you mentioned.
JS: The three are: transport as a service, autonomous vehicles, and electrification of vehicles. All three work together. The other factor that I think is really important is that we are learning to produce batteries a lot cheaper. It will be more possible to store intermittent energy from renewables. There are a lot of people who will say we can solve everything with renewable. In fact, I totally disagree with one of my colleagues who keeps writing papers saying that we can satisfy all our energy needs with just wind power, solar power and batteries. But with intermittent renewables we need both daily storage and seasonal storage. The fact that batteries are getting cheaper is a really important thing in facilitating the growth of the renewables.
MK: But the opposing argument is why would the declining cost of storage serve only renewables, it might just as well serve base load generation.
JS: You are right. With intermittent, time fluctuating demand, for example, during the day versus night, it will make a difference for base load as well. Low cost storage can make a difference for all the supplies of electricity and will allow you to re-optimize your whole system. But the cost is currently still too high. In whatever way the system is configured, low cost storage will allow you to do things differently, which means you’ll need less generating capacity if it’s base load in order to do what you’re doing.
So, I am both hopeful and cautious at the same time. I’m hopeful that there are a lot of technological and institutional advances taking place. What I mean by institutional advances is that people are finding new ways of using the same technologies. For example, there are companies here who are installing energy efficient lighting systems for Fortune 500 companies, installing and redesigning lighting, using LEDs, with a wireless mesh network that monitors the light levels in various places. The systems optimize the lighting and energy use, given the external light and the occupancy of the room. Those are all existing technologies. It’s innovation. Innovation in the way existing technologies are being supplied by companies who can find a good business opportunity, market the special expertise to other businesses. So when I talk about innovations in technology, I also mean innovations in business practices. Business opportunities abound in case where the client should know how to do it but they don’t. These changes are happening around the world. Technologies are being shared, that is companies buying and selling from each other.
On the other hand, in my country, I see a President who backed out of Paris and denies that climate change is a problem. People do listen to what the President and other leaders say. One of the real powers of being President is that you are able to shape the narrative, change convictions, and thus influence private decisions. That is important as most of the innovation is coming from people in the private sector, not from the government. Beliefs of people in the value of innovation influences the level of innovative effort.
A second caution is about the Paris Agreements. The national commitments are not nearly enough to avoid dangerous emissions change. And most countries aren’t meeting their commitments, so the combination implies that the reality is not as good as needed to solve the problem. At least in technologies, institutions, behavior within the energy space, there’s a lot of innovation that, over time, will make a lot of difference. In the end, I don’t know whether I should be hopeful or cautious, or both.
MK: Overall, I completely share in the fact that new technologies prove we have faith in science, in innovation. People tend to say “oh we went too far with economy development, technology development etc.”, but for me it’s nonsense. All the benefits that we have: houses, lighting, mobility, being able to move from one place to the other, with a plane etc., it brings so many benefits and has a huge value. Yes, of course, there are side-effects but nothing is without side-effects and even if we have new technologies to generate electricity, to distribute it etc., of course there will be adverse effects, side-effects, probably different than today’s, but they are still there. The only thing is to be able to choose well. Sometimes we can choose which of them we accept and which of them we consider as too dangerous. For example, you mentioned nuclear. That’s one of the big things because right now everybody seems to agree, and I’d be very happy to hear your opinion, that because of that unconventional gas revolution, gas in the US will play bigger and bigger role and gas combined with renewables, combined with storage, in fact will shape the panorama of technologies for dozens of years to come. So what about coal, what about nuclear?
JS: Well, I think what is happening to nuclear right now in the United States is that it’s losing because of the economic comparison. Nuclear power plants exist in many parts of the country. If we ignore the capital cost, they still cannot compete with generation of electricity using natural gas and renewables for those markets with real time wholesale pricing. If you have to build a new plant and pay the capital cost, it really can’t compete in many of the US markets. I think nuclear power is losing not in the terms of the environmental issues that some people don’t like. There’s always a group of people that don’t like something. I think that absent a carbon tax and absent major nuclear power cost reductions it cannot win the economic competition in the United States. It’s just more costly in the United States than natural gas. However, natural gas is more expensive in Europe than it is here, so I’m not making a European statement. I’m making a US statement.
Now, will that change? People are developing small modular nuclear reactors, so it can be on a much smaller scale, but the cost estimates of those are not substantially cheaper than the large-scale ones on a per megawatt basis. If it’s the same cost per megawatt hour, it is not going to win the economic competition just because it’s small. So, I actually think that nuclear is not going to have any Renaissance in the United States because of the economics.
MK: Okay, but at the same time, when I visited Japan recently, I talked with colleagues in Japan and Fukushima was quite a shock. Still, the Japanese system proved to be so resilient, because they almost immediately switched off the nuclear power plants, they switched on gas and coal, they had enough reserve and they had enough capacities, competences, management practice regulatory framework etc.
JS: And a lot on the demand side.
MK: True. Yet, the Fukushima lesson for me is that you don’t know when there will be a problem for any given technology. You might have a problem – this time it was nuclear, but next time – I don’t know. Maybe it could be some other technologies and so, in fact, having a diversified portfolio of technologies, is in itself also a value.
JS: Yes, at a cost. And the issue is how much you’re paying for that insurance value, how valuable that insurance value is versus the cost. One of the issues with nuclear is it doesn’t really give you much flexibility. Once you get a nuclear plant operating, it is likely to provide base load power. Even if you sometimes reduce electricity generation, the capital cost is not reduced. Thus, I find it hard to think about nuclear as creating resilience. If you want to construct new nuclear power plants here in the US, it takes 10-15 years, whereas additional natural gas turbines, for example, can be built quickly and turned on and off. Natural gas does provides some resilience. Coal plants are between the two extremes; they can provide both base load and intermittent power.
So yes, you need some diversity but you have to ask at what cost that diversity is. I don’t think nuclear gives you a lot of flexible diversity. And it is losing the economic battle fairly significantly, even existing plants in the United States. In that circumstance, I just don’t see nuclear coming back significantly in the United States. In China, where they don’t have a lot of natural gas and they understand the environmental consequence, they are building up their hydro and plants. Both are part of the clean solution, because in China they recognize the air quality impacts of coal-fired plants. I have trouble understanding some of the issues in Europe. I don’t understand why governments are banning fracking for natural gas; I believe that fracking for natural gas delivers more benefits than costs. However, the French government and other governments do not seem to agree. I don’t know why, given the costs in Germany of natural gas in comparison to other alternatives, they’re precipitously shutting down nuclear and substituting with coal. So, there’s a lot of things I don’t understand about your continent either.
MK: This is another thing from a Polish perspective that I share with you. The fact that we don’t understand it either, when there are so many choices in each country. So here comes my final question. When we project ourselves, it is always a very difficult exercise. When we project ourselves, let’s say, 30 years from now – 2050, what will the energy world look like in your opinion?
JS: I don’t know. If I project 30 years from now, I’ll be dead. I’m pretty confident about that. There will be a big push towards renewables in electricity supply as well as supply of liquid fuels. I think new automobiles will be mostly all electric. On the other hand, I think people will be concerned with more electrification, since that may imply more transmission lines. In Europe, I don’t know whether there will be much cleaner coal with carbon capture and storage or whether Europe will go nuclear. You can flesh out all of these different scenarios. There are several groups that have tried to fully envision alternative scenarios. Some of this work has been done through Stanford’s Energy Modeling Forum, including many European modeling teams. These mathematical modeling exercises tell me that there are many plausible pathways for the future, depending on technological developments. I assume that over time there will be a growing broad recognition about how important it is to deal with global warming. We may have surprises of technological developments. Therefore, all I can say is I don’t know with any certainty. I’ve examined many scenarios — and there are many very different yet plausible scenarios. Given that, I don’t know just what the future will hold.
I would say there are generic things that we want to do. Generically, we want to create pressure for innovation in clean energy supplies. Whether that’s going to be new nuclear or wind or solar or clean coal or carbon capture and storage, I don’t know. Generically, we want to create pressure for end-use energy switching from dirtier forms of energy toward cleaner forms. Generically we want pressure towards innovating more efficient use of energy. You want energy efficiency and clean energy supplies to both be important parts of the mix. You want end-use switching from dirty forms of energy to cleaner energy, for example, electric cars and all-electric homes.
To promote those different forms of innovations you want many different types of leadership and motivation. I’d like a carbon price, but I don’t think a carbon price would be the complete answer. I think moral leadership matters, the bully pulpit matters, the institutions’ readiness to share technological advances matters, funding of basic science and technological development matters, creating other incentives matters. Therefore, I don’t know specifically which technologies will dominate, but I do expect strong a pressure towards cleaner supplies of energy, end-use energy switching, and more efficient use of energy.
I look back and I think about developing the Project Independence Report, completed by the US federal government in 1974. What it discussed about options was very instructive and interesting. It said there should be as much attention on the demand side of energy markets as on the supply side. It talked about more fuel-efficient vehicles and more fuel-efficient buildings, energy efficiency, but it didn’t describe in depth the various new technologies that were ultimately to be developed. I remember that because I was heavily involved in that mathematical modeling for that major report. I find it interesting to see that there was a careful effort to look at those things and to see that many of the changes that in fact occurred were not envisioned by those involved in that systematic effort. So, if we think we can envision at the central government level all the specific changes, we’re fooling ourselves, although we probably can envision the more generic changes.
MK: Thank you.
The interview comes from the book “The Future of Energy” published in 2019 by the Bureau of the COP24 Presidency of the Ministry of Climate and Environment of the Republic of Poland
