The case for sustainable energy

Transcription

1 The case for sustainable energy A review and analysis of the economic and enterprise benefits June 2012 Version 1.0

2 2 The Case for Sustainable Energy A review and analysis of the economic and enterprise benefits Report prepared by: Matthew Clancy Jim Scheer

3 Sustainable Energy Authority of Ireland The Sustainable Energy Authority of Ireland was established as Ireland s national energy authority under the Sustainable Energy Act SEAI s mission is to play a leading role in transforming Ireland into a society based on sustainable energy structures, technologies and practices. To fulfil this mission SEAI aims to provide well-timed and informed advice to Government, and deliver a range of programmes efficiently and effectively, while engaging and motivating a wide range of stakeholders and showing continuing flexibility and innovation in all activities. SEAI s actions will help to advance Ireland to the vanguard of the global green technology movement, so that Ireland is recognised as a pioneer in the move to decarbonised energy systems. SEAI s key strategic objectives are: Energy efficiency first implementing strong energy efficiency actions that radically reduce energy intensity and usage Low-carbon energy sources accelerating the development and adoption of technologies to exploit renewable energy sources Innovation and integration supporting evidence-based responses that engage all actors, supporting innovation and enterprise for our low-carbon future The Sustainable Energy Authority of Ireland is part-financed by Ireland s EU Structural Funds Programme, co-funded by the Irish Government and the European Union.

4 1 Introduction A global transition towards sustainable energy is under way. An efficient, low carbon energy system can bring numerous economic benefits to Ireland. It can generate strong growth, support thousands of jobs, increase business competitiveness, and ensure security of supply, while protecting energy users from volatile energy prices. This paper discusses the economic arguments in favour of an accelerated transition towards a sustainable-energy society. By taking action now, Ireland can reap the benefits earlier and establish a strong position in the area of sustainable-energy enterprise and innovation. This paper highlights the potential benefits and quantifies the job-creation potential across the sustainable energy sector. Key points The global transition to sustainable energy offers considerable economic and enterprise opportunities to Ireland. Ireland has significant advantages in sustainable energy, including a very large natural resource in renewable energy, and strong skills with a good reputation in key sectors such as information and communications technology. Onshore wind is making a strong contribution to Ireland s electricity system, without adding any costs while reducing annual CO 2 emissions. Energy efficiency programmes are bringing substantial net economic benefits. Achievement of our energy efficiency targets for 2020 could reduce Ireland s energy costs by 2.3 billion per annum. As fossil-fuel prices increase, the benefits of sustainable energy supply and use will grow. Sustainable energy could support at least 30,000 Irish jobs by Ireland s high dependence on imported fossil fuels increases the security of energy supply risks and exposure to volatile international fuel prices. The sustainable energy agenda will reduce these. Market barriers impede the development of renewable energy and the implementation of energy efficiency. Government policy is aimed at overcoming these market failures and barriers while maximising the enterprise opportunities.

5 2 Sustainable energy imperatives Import dependence Ireland depends heavily on energy imports. We currently import 86% of our primary energy needs. 1 We can reduce this dependence both by improving the way we use energy and by developing indigenous sources of energy. Ireland s electricity system has become increasingly dependent on natural gas, which currently accounts for 61% 1 of the fuel used in electricity generation. Our dependence on imports means risks to our security of supply, and also leaves us vulnerable to price volatility. However, we have substantial renewable resources, including onshore wind energy potential representing more than 120% of our electricity demand, and offshore wave and wind energy that could produce many times our domestic requirements. 2 By availing of these resources, we could reduce our dependence on imports and prepare for a future of oil scarcity and high carbon costs. Binding targets Ireland is subject to the EU Renewable Energy Directive, which sets targets for the amount of renewable energy we use as a percentage of gross final consumption. Ireland s plan to achieve its overall binding 16% renewable energy (RE) target envisages 40% penetration of RE in electricity consumption, 10% in transport, and 12% in heat. 3 EU member states that cannot meet their targets through national action can purchase compliance from other states. A market in compliance units is anticipated in the second half of this decade. Ireland also has challenging EU 2020 targets for greenhouse-gas (GHG) emissions, the price impacts of which are uncertain. Beyond this, the EU has signalled a longer-term target of an 80% 95% emissions reduction by It is thus important to plan strategically for a time horizon well beyond 2020, especially since many investment and policy decisions made today will have effects over many decades. Finally, Ireland is committed to the EU ambition of a 20% reduction in energy demand in 2020 through improved energy efficiency. Achievement of this target makes it easier to achieve the RE target since it reduces the demand on which the overall 16% target is calculated. Saving energy through efficiency also represents one of the cheapest ways to reduce emissions and thereby contribute to the GHG reduction target. 5 Wider benefits The future economic competitiveness of Ireland requires more efficient use of our resources. Wasteful use of energy is economically inefficient as well as harmful to the environment. Both the economy and the environment will benefit if we adopt innovations that simultaneously increase our economic and our resource efficiency. This includes improving the ways in which we source and use energy for our daily lives and for doing business. One example of the benefits is the recent strong development of wind energy in Ireland, which now provides more than 10% of our electricity needs. Wind and other renewables in electricity generation are already reducing national CO 2 emissions by about 2m tonnes per annum. The Irish wind-energy sector is supporting local employment and, as one of the global leaders in wind-energy deployment, is helping to mark Ireland out as a place to do 1 EPSSU, SEAI (2011), Energy in Ireland : 2011 Report. 2 SEAI 2011, Wind Energy Roadmap, Publications/SEAI_Roadmaps/Wind_Energy_Roadmap.pdf 3 Department of Communications, Energy and Natural Resources (2011), First Progress Report on the National Renewable Energy Action Plan. 4 Below 1990 levels. Refer to the EU Energy Roadmap 2050 (COM/2011/0885 final). 5 See for example Ireland s Low Carbon Opportunity An analysis of the costs and benefits of reducing greenhouse gas emissions, SEAI, 2009.

6 6 The Case for Sustainable Energy A review and analysis of the economic and enterprise benefits business in the renewable and clean technology sectors. This acts as a foundation for further growth in this rapidly emerging sector. Beyond the energy and emissions reductions traditionally considered, energy efficiency improvements can also provide an extended range of benefits. A growing body of evidence identifies the multiple benefits of energy efficiency and RE investment. These include the potential for improvements to health and wellbeing, increased asset values, business productivity gains, improved energy security and, importantly, job creation, an issue discussed further below. 6 Macro impacts Public budgets Resource management Energy provider benefits Development goals Health and social benefits Energy efficiency improvement Energy prices Job creation climate change mitigation Source: International Energy Agency (2012) Asset values Exploiting our opportunities Consumer surplus Industrial productivity Poverty alleviation Energy savings Energy security The sustainable energy transition suits Ireland because we have a very strong natural RE resource and the right skills set for innovation in smart technologies. Studies indicate both the significance of renewable resources in Ireland relative to other EU 6 See for example Ryan, L. and Campbell, N. Spreading the Net: The Multiple Benefits of Energy Efficiency Improvements, IEA, member states, and the relative costs of exploiting their potential. 7, 8 A draft study by SEAI on Ireland s offshore potential indicates that 60 GW of offshore energy is potentially available. This could supply many times our current demand. 9 According to the European Commission think-tank, Intelligent Energy Europe, Ireland is among the most cost-effective locations for sourcing renewable energy in Europe. A number of studies indicate strong potential for improved energy efficiency in Ireland, achievable on a cost-effective basis. Detailed modelling suggests that 26% in energy savings are available across the industrial, residential, commercial and public sectors. 10 An economic study undertaken by SEAI in conjunction with McKinsey and Co. indicated that about 40% of the emissions abatement potential would have a negative net social cost, even if low oil prices are assumed, and could be delivered through improved energy efficiency across all sectors, in particular in buildings, building services and improved industrial processes. 11 This estimate increases to over 50% when oil prices closer to current levels are assumed. 12 Also, SEAI s detailed cost-benefit analysis of energy efficiency programme delivery indicates that improving energy efficiency in these sectors saves hundreds of millions of euro more than it costs. 13 Achieving Ireland s 20% energy efficiency 7 RES2020 (2009), Monitoring and Evaluation of the RES directives implementation in EU27 and policy recommendations for International Energy Agency (2009), Wind Energy Annual Report. Ireland s production rate from wind is significantly higher than average. 9 SEAI (2010), Offshore Renewable Energy Development Plan (draft). 10 SEAI (2008), Demand Side Management in Ireland Evaluating the Energy Efficiency Opportunities. 11 SEAI (2009), Ireland s Low Carbon Opportunity An analysis of the costs and benefits of reducing greenhouse gas emissions. 12 $120/barrel 13 SEAI (2011), Economic analysis of residential and small business energy efficiency improvements.

7 7 target could reduce the energy spend across the economy by an estimated 2.25 billion in Much of the work required to realise the economic potential of a sustainable energy system, including both the supply and demand sides, is based in enterprise sectors in which Ireland already has strong expertise and an available workforce. Information technology (IT) solutions will be at the heart of smart-grid development, driven by the requirement to integrate increasing levels of renewables, to better control supply and demand, and to provide greater information to consumers. The construction industry will need to improve our building stock, by developing new skills and approaches. Irish expertise in energy management is already supporting industry and business in managing energy use more sustainably both in Ireland and abroad. Over the long term, the development of the pan- European electricity market and the associated increase in interconnection between markets will increase the physical export potential from Ireland. The long term EU ambition to reduce emissions by 80% 95% will require decarbonisation of the electricity system and significant changes in the supply of heat and transport energy. 16 According to the wind technology roadmap, 17 Irish wind has the potential to contribute up to 2.5% of EU-wide electricity demand by Ocean energy has similar potential. This represents a major opportunity for Ireland.Sustainable energy is the subject of considerable debate in society, with a number of economic questions being raised. This section outlines some of the key debates and highlights relevant evidence. Exporting clean energy As the worldwide and European energy systems move away from fossils fuels, Ireland due to the better resource and hence lower cost of production will be able to sell clean energy to other countries. In the short term, under the terms of the Renewable Energy Directive, Ireland may be in a position to sell renewables compliance to other EU member states, either by over-achieving on our target or by allowing other EU states to jointly fund projects here. The economic potential of this is the subject of a current study, led by SEAI and the Department of Communications, Energy and Natural Resources (DCENR). The British-Irish Council announced recently that it would investigate the possibility of the UK sourcing some of its renewable energy requirement from installations built in Ireland Forthcoming update to the National Energy Efficiency Action Plan (NEEAP). 15 Hendry, C. (2012, May), at All Energy Aberdeen, Aberdeen, Scotland SEAI (2011), Wind Energy Roadmap

8 3 Addressing the economic questions Why should the Government promote a sustainable energy system? Energy markets, due to a range of market barriers and failures, will not always on their own deliver the investments required for an energy system that maximises the benefit to society. Examples of market failures 18, 19 include: Split-incentives: 20 This is where the economic benefits of reducing energy use or carbon emissions do not accrue to the party achieving the savings. For example, in the landlord/tenant relationship, there is no incentive for the landlord to improve the energy efficiency of a building, as all the benefits will accrue to the tenant. On the other hand, the tenant cannot readily take action to improve the efficiency of a rented dwelling. Market design: Legacy energy market rules are designed to deal with traditional fossil fuel generators. This leads to more volatile returns and volatile cash flow for renewable energy projects, thereby increasing risk. 21 These established and complex market structures are difficult to change at the pace demanded by climate change imperatives, without the risk of inducing negative consequences. Lack of access to capital to make desirable investments due to information deficits, where potential investors are unaware of the net benefits available through investing in existing RE technologies. 22 Behavioural failures: A number of studies show that people do not purchase energy in an economically rational fashion 23 (as assumed in classical economic theory). Choices are based on force of habit rather than on cost. We are inclined to take the most satisfactory solution for us at a given moment, limited by the information and time we have available as inputs to the decision. Providing security of supply: In the absence of government intervention, energy markets do not attach a value to delivering security of supply on the required scale as individual incentives are misaligned with what is best for the country as a whole. 24 One study concluded that our overexposure to imported fossil fuels would have a negative impact on the Irish economy in the event of any future price shocks. 25 Ireland is more exposed to this risk than its European neighbours. Lack of investment in research and development: It is well established that private markets will under-invest in R&D in new technologies because of uncertainty and an inability to fully realise the returns on such an investment. 26 The history of the development of new technologies shows that, as deployment increases, costs decrease through learning and 18 Gillingham, K. and Sweeney, J. (January, 2010), Market failures and the structure of externalities in B. Moselle, J. Padilla and R. Schmalenese (eds), Harnessing Renewable Energy in Electric Systems, RFF Press, London, pp Ryan, L., Moarif, S., Levina, E. and Baron, R. (2011) Energy Efficiency Policy and Carbon Pricing, IEA, Paris. 20 Faiers, A., Cook, M. and Neame, C. (2007), Towards a contemporary approach for understanding consumer behaviour in the context of domestic energy use, Energy Policy, 35 (8), Lipp, J., (2007), Lessons for effective renewable electricity policy from Denmark, Germany and the United Kingdom, Energy Policy, 35 (11), Lovins, A.B. & Lovins, L.H. (1997), Climate: Making Sense and Making Money, Rocky Mountain Institute. 23 Simon, H. (1997), Models of Bounded Rationality, Vol.3, MIT Press, Cambridge MA. 24 Helm, D. (2002), Energy policy: security of supply, sustainability and competition, Energy Policy, 30 (3) The economic impacts for Ireland of high oil and gas prices. Research project commissioned by Siemens Ltd (July, 2010). 26 Stoneman, P. & Vickers, J. (1988), The assessment: The economics of technology policy, Oxford Review of Economic Policy, 4(4), i-ix.

9 9 economies of scale. 27 Until such economies of scale are reached, promotion of new technologies (such as ocean energy devices) and application of existing technologies (e.g. for deeper retrofit of our housing stock) is important for developing markets. Environmental externalities: It is well established that, in the long term, environmental damage caused by emissions of greenhouse gases will have a negative economic impact. 28 The cost of this damage is negligible for the emitters but substantial for society. 29 While such externalities have begun to be internalised e.g. via the EU-ETS and Irish carbon tax current prices are too low to induce the necessary investment in emissions reduction required to meet our targets. Governments must step in to correct these market failures and promote solutions that benefit society as a whole. Won t carbon pricing be enough to achieve the targeted emission reductions? Carbon pricing at current levels will not be enough on its own to stimulate sufficient take-up of low carbon and RE technologies to reduce carbon emissions to the required level. This is due to market failures, behavioural factors and the nascent state of many of the relevant technologies and sectors. Increasing the cost of emitting carbon makes energy saving technologies and additional renewable sources of generation more competitive. It is thus an essential component of carbon abatement policy, but at current levels carbon pricing alone is not sufficient to overcome many of the barriers to uptake of low carbon and RE technologies. Some of these barriers have been discussed above. The Stern Review of UK climate policy 28 states that the social cost of carbon is US$85/tCO 2, while the International Energy Agency 30 estimates that a carbon price of US$45/tonne is required by 2020, with a further price rise to US$ 120/tCO 2 required by 2030, to reach global climate change targets. The difference between current carbon prices and these estimates represents a market failure in itself. Despite an expanding global carbon market, the EU-ETS carbon price applicable to large industrial emitters and power generation in Ireland decreased by 9% in 2011, to around 13/ 31 tco 2. At the time of writing, the EU-ETS carbon price was about 7/tCO 2 (May, 2012). Dealing with any remaining market barriers and failures, through appropriate government intervention, will complement the carbon pricing regime, thereby increasing the cost effectiveness of the carbon price signal. 32 Does renewable energy (RE) cost more? Not necessarily. While renewable energy may, at present, have higher upfront costs, many forms of RE have little or no fuel costs. In a market comparison with fossil fuels, several forms of RE have been shown to be competitive even before the added benefits of security of supply, environmental improvements and RE employment are factored in. 27 Ibenholt, K. (2002), Explaining learning curves for wind power, Energy Policy, 30 (1), Stern Review on the Economics of Climate Change (2006), available at Hardon, G. (1968), The tragedy of the commons, Science 162 (pg ). 30 International Energy Agency (IEA) (2011), World Energy Outlook IEA, Paris. 31 Analysis by Bloomberg New Energy Finance (11 January, 2012). 32 Ryan, L., Moarif, S., Levina, E. and Baron, R. (2011), Energy Efficiency Policy and Carbon Pricing, IEA Paris.

10 10 The Case for Sustainable Energy A review and analysis of the economic and enterprise benefits For example, analysis by SEAI and EirGrid shows that wind energy will add no cost to electricity in This is because wind energy lowers wholesale prices by an amount that matches the additional Public Service Obligation and constraint costs associated with wind. Overall costs do not rise, while wind energy brings wider benefits including reduced dependence on imports, supply diversification and security, and carbon reduction. This detailed SEAI/EirGrid analysis of the cost of wind for the Irish electricity system is consistent with the findings of other studies such as the All-Ireland Grid Study 34 and market studies by the ESRI 35, 36 and CER 37, both of which found that increased levels of wind would reduce overall market prices, particularly at high fossil-fuel prices. Since RE such as wind and ocean energy has no ongoing fuel cost, when these technologies replace fossil fuel energy sources, exposure to the volatility associated with fossil fuel prices is removed. In other words, RE can act as a hedge against fossil fuel prices. The growth in demand and the expansion of RE capacity will require investment in the transmission grid. Ireland s electricity transmission grid has had low levels of investment for the last two decades while electricity demand has more than doubled. Over the same period, Ireland s gas demand has grown by 177% and over 4 billion has been invested in the gas infrastructure. Initial estimates of transmission grid requirements, to facilitate an increase in demand and the expansion of renewable electricity generation, suggested a similar requirement for 33 EirGrid/SEAI (2011), Impact of wind generation on wholesale electricity costs in All-Ireland Grid Study, DCENR/DETI, January Devitt, C., Diffney, S., FitzGerald, J., Lyons, S. and Malaguzzi Valeri, L. (2009), The Likely Economic Impact of Increasing Investment in Wind on the Island of Ireland, WP334, (ESRI). 36 Devitt, C., Malaguzzi Valeri, L. (2011), The Effect of REFIT on Irish Electricity Prices, WP 374 (ESRI). 37 Impact of High Levels of Wind Penetration in 2020 on the Single Electricity Market (SEM) (2009), CER/NIAUR. investment in the electricity transmission network, but recent demand projections indicate that this requirement is likely to be considerably lower. Investments in large-scale energy infrastructure are costly. It is likely that energy infrastructure developed today will still be in use in 30 years time, and probably beyond. At present, the price signals associated with many technologies are too low to stimulate sufficient investment in RE and energy efficiency, resulting in continued investment in more carbon-intense technologies. This leads to a lockin to a higher overall emissions trajectory and an associated underdevelopment in the knowledge, networks, industries, economies of scale and technologies required to divert from this path. 38 This means that the costs of changing this trajectory in the future will be higher, compared to taking action now. While the upfront costs of RE installations tend to be higher than the cost of fossil-fuel generation, many of the renewable generators have no ongoing fuel cost. When the lifetime costs of these installations are compared, some renewable technologies, such as onshore wind, are already competitive with fossil fuel alternatives. 39 Does sustainable energy policy lead to job opportunities? Yes as a positive side effect of aligning enterprise policy with energy policy. Energy policy is necessarily concerned with the required transition from a fossil fuel dominated system to one that deals with the challenges of security of supply, competitiveness and sustainability. Focusing this policy on changes that encourage the development of new domestic clean energy sectors can help Ireland to sustain domestic jobs now and become an exporter of skills and technology in the future. 38 Sorrell, S. (2003). Carbon Trading in the Policy Mix, Oxford Review of Economic Policy, 19 (3), Milligan et al (2009), Wind Power Myths Debunked, Power and Energy Magazine, IEEE, 7 (6),

11 11 As part of achieving our energy efficiency targets, close to 100,000 homes a year will be upgraded by construction workers. In addition, participating households will reduce their fuel bills, thus increasing their spending power. This means a shift in payments from imported commodities towards local goods and services. The market for technologies and services associated with sustainable energy and decarbonisation is growing rapidly. Internationally, the IEA estimates that governments will need to spend $180 billion 30 in 2035 alone on sustainable energy measures to achieve climate change targets. Ireland is ideally positioned to sell the skills of the domestic ICT sector, to test technologies and to develop export industries from our abundant sustainable resources. Section 4 below quantifies the sustainable energy job opportunities in Ireland. What are the main benefits if Ireland pursues a sustainable energy system now? Ireland will gain from a range of economic and environmental benefits if we pursue a sustainable energy system now that incorporates increased RE supply and minimises the energy needs for our daily lives and business. The Stern review and the IEA have both stated that delays in addressing climate change raise the cost of mitigation significantly in the long run. The IEA in its 2010 World Energy Outlook (WEO) 40 suggests that the cost of failing to secure an international agreement in Copenhagen in 2009 will be at least $1 trillion. In addition, the level of effort internationally to mitigate climate change will create opportunities for early movers. The IEA predicts that, collectively, governments must spend $180 billion ($ 2010 ) 30 on RE supports in 2035 alone, 40 International Energy Agency (IEA), (2010), World Energy Outlook, IEA, Paris. a fourfold increase from today. Denmark s and Germany s wind industries are two good examples of early-mover advantage in action. In Germany, one of the first countries to introduce support for wind energy, investment costs fell from 4,500/ kw in 1992 to around 1,000/kW today. This has resulted in German firms capturing much of the current world market. 41 Taking a lead in innovative RE technologies, such as ocean energy devices, or in the developing smart grid market would provide Ireland with opportunities to gain a first-mover advantage, bringing with it future economic and employment potential. The Renewable Energy Directive allows EU states to trade RE compliance across their borders. EU countries that do not reach their targets will be obliged to buy compliance from countries that over achieve on theirs. 42 Ireland has low demand relative to its vast renewable electricity potential. Research by the European Commission think tank, Intelligent Energy Europe, suggests that Ireland is among the most competitive locations to over achieve on the target, thus confirming its potential for future export of compliance to other EU member states. Up to the electricity network congestion limits, Ireland can produce and sell this compliance at lower cost than other member states can produce it domestically. Analysis of energy efficiency policy 30 shows that it has a central role in reducing global energy related CO 2. A study on carbon abatement options for Ireland 6 shows that improving the efficiency of energy consumption is among the most cost effective ways to reduce carbon emissions. Analysis of the impact of Ireland s energy efficiency target suggests that up to 2.25 billion could be saved in the Irish economy in 2020 through avoided energy costs. 14 Consumers who reduce their energy bills now are insulated from future energy price rises 41 Hass, R. (2002), Survey on and review of promotion strategies for RES in Europe, ENER Bulletin, 25(2), The possibility that both the UK and Germany may find it difficult to meet their targets has been raised e.g. Fitzgerald, J. (2011), A Review of Ireland s Energy Policy, ESRI.

12 12 The Case for Sustainable Energy A review and analysis of the economic and enterprise benefits and have more disposable income to spend in the economy. Businesses that improve the way in which they consume energy will reduce their operating costs and increase their competitiveness. Such reduction in energy requirements reduces the dependence on imported fossil fuels and increases Ireland s security of supply. If energy efficiency can provide these benefits, why does it not happen anyway? Energy efficiency measures, especially in the residential sector, are subject to a wide range of market barriers and failures that inhibit investment, even if such investment seems to make good economic sense. 19, 43 Government supports including grant schemes, information provision and expert advice help to remove these barriers. Financial support can be used to build markets with quality on the supply side and awareness and confidence on the demand side. Supports can then be withdrawn when a healthy market is in place. Such approaches are the norm internationally, where the challenge of achieving full energy efficiency potentials is widely acknowledged. Financial, informational and other stimulus policies and programmes can bring considerable social benefits that the market would leave untapped, even with carbon pricing. In fact, policy instruments can complement and enhance the impact of a carbon tax. 19 Energy efficiency tends to pay back much more than the cost of the typical investment. 44 (See question 1 above for more detail on the main market barriers.) 43 O Malley, E., Scott, S. and Sorrell, S. (2003), Barriers to Energy Efficiency: Evidence from Selected Sectors, The Economic and Social Research Institute, Dublin. 44 SEAI (2011), Economic analysis of residential and small business energy efficiency improvements. Why not achieve our targets through demand reduction? The current target of 20% in energy savings through improved energy efficiency represents a serious challenge. In the residential sector, it is estimated that 100,000 homes a year will have to be upgraded by Industry and small business will need support to continue to achieve efficiency gains, and strong action will be required in the transport sector. Meeting our RE obligations through demand reduction alone that is, without any further delivery of RE generation would require more than a fourfold increase in our current efficiency target. While there is potential for energy savings through efficiency improvements at very low or negative cost in terms of CO 2 abatement, a fourfold increase in our target would be costly. It would be likely to exceed the costs of some supply side measures in terms of cost per tonne of carbon abated. Does future exploitation of shale gas offer a viable solution? The development of shale gas extraction methods over the last decade has tapped into a large, previously unexploited resource. The USA, where the application of the fracking technology was pioneered, has seen a fundamental change in its gas market. Last year the USA supplied a large proportion of its demand from domestic sources as a result of developments in the exploitation of shale gas. 30, 45 Future projections suggest further development of this resource in the USA and technical potential for its development in other countries, including EU member states. 45 The early experience of fracking in the USA has led to environmental and public health concerns. In addition, estimates for the lifecycle carbon emissions from shale gas are higher than for conventional 45 Medlock, K.B. (2012), Modelling the implications of expanded US shale gas production, Energy Strategy Reviews, 1 (2012)

13 13 natural gas; recent research suggests that the GHG emissions may be even higher than with coal. 46 While the USA has seen significant falls in the price of gas, 45 this has not been mirrored in Europe. Spot prices at the National Balancing Point (NBP) in Britain, which sets the Irish price, have risen by almost 90% since April as compared to a fall of 50% at the Henry Hub in the USA over the same period. 48 This points to the regional nature of the gas market and the lack of liquefied natural gas (LNG) infrastructure in Europe. It also indicates that the environmental externalities of shale gas may not yet be captured in the US price. A recent publication from the European Parliament, summarising the outcome of expert contributions to a workshop on shale gas extraction, details the range of issues relating to the exploitation of shale gas in Europe. 49 Several contributors point to the need for further analysis on the environmental impacts, in advance of full scale production. Tight environmental regulations and a requirement to count the full lifecycle emissions cost are recommended. Both these aspects are likely to increase the cost of shale gas extraction within the EU, and, with the full cost of exploitation included, it remains to be seen if this energy source will be cost competitive before Difficulties in exploiting shale gas in Europe due to a number of factors including high population density, more stringent environmental requirements and lack of access to the large quantities of water required for fracking have also been 46 Howorth, R.W., Santoro, R., Ingraffea, A. (2011), Methane and the greenhouse gas footprint of natural gas from shale formations, Climate Change (106) NBP spot price quoted by Bloomberg on 05/04/2012. raised. 50 Thus, it is not clear what effect shale gas 30, 50 will have on gas prices in Europe or Ireland. Recent announcements by Germany and Japan to move away from nuclear energy add to this uncertainty. Work continues to exploit the potential of shale gas while not damaging public health and the environment. Shale gas may contribute to EU gas supply in the coming years and have some price-lowering effect. However, there are many uncertainties and, given Ireland s already high dependency on gas for power generation, 1 following a path that relies entirely on the assumption of low gas prices would be a high risk strategy. Are there other benefits associated with a more sustainable energy system? Yes. A growing body of evidence identifies the multiple benefits of energy efficiency and RE investment. These include the potential for improvements to health and wellbeing, increased asset values, business productivity gains, energy security, regional development and, of particular importance currently, job creation. These many benefits can occur separately or in combination at the individual, sectoral, economy wide and international level. Given the difficulties associated with measuring and monetising many of these benefits, they are often excluded from economic analysis of policies and programmes. A recent SEAI study 51 reported a number of non-energy benefits experienced by scheme participants, including improved comfort and perceived increase in property values. 48 Henry Hub spot price quoted by Bloomberg on 05/04/ Lechtenböhmer et al (2011), Impacts of Shale Gas and Shale Oil Extraction on the Environment and Human Health, Directorate-General for Internal Policies, Policy Department A Economic and Scientific Policy, European Parliament, Brussels: final.pdf 50 Shale gas is an environmentally obtrusive gas source, Poyry Presentation to the Natural Gas Conference, 14 April 2011, Dublin. 51 SEAI (2010) Bringing Energy Home Understanding how people think about energy in their homes.

14 14 The Case for Sustainable Energy A review and analysis of the economic and enterprise benefits Work continues to further measure and incorporate co-benefits into policy and programme evaluations. 52 When should policy effort take place? Achieving renewable energy and energy efficiency goals will benefit Ireland. The aim for policy makers is to achieve these goals at least cost to energy consumers while maximising the multiple benefits that might accrue to society not least in terms of export and enterprise opportunities. SEAI, which is tasked with providing evidence based analysis to support policy making, has developed models, funded institutions and published reports that inform optimal policy. A number of key considerations are involved in determining the optimal path. The move to a low carbon system is a process that will occur over the next 50 years. The challenge is to determine the best path to this goal. In general, renewable technologies have higher upfront costs than fossil fuel generation but have much lower running costs and provide additional benefits, including increased security of supply. Investing in these technologies at the best time will mean that the carbon lock-in associated with development of new fossil fuel generation can be avoided, enterprise opportunities can be maximised and the cost of energy reduced. 52 See for example Ryan, L. and Campbell, N. (2012), Spreading the Net: The Multiple Benefits of Energy Efficiency Improvements. IEA.

15 4 Quantifying Ireland s sustainable energy job potential Energy policy aligns closely with enterprise policy. They share the imperatives of competitiveness, strategic security and mitigation of environmental costs and risks. These imperatives are increasingly driving business decisions, such as where new investments will take place, as well as influencing customer demand and hence business success. There are three core areas of opportunity for Ireland: 1 Renewable energy 2 Energy efficiency and smart technology 3 Enhanced international competitiveness Figure 1: A typology of sustainable energy jobs potential in Ireland Retrofit construction Energy management Smart grid & cleantech Energy efficiency Deployment Energy jobs Renewable energy R&D Business cost reduction Irish competitiveness Industry A clean energy location It is important to recognise that sustainable energy supports jobs not just in direct sectors such as RE deployment or building retrofit, but also in many other sectors through cost reduction or enhanced sustainability. It is also important to note that many aspects of job potential are inter-related. For example, deploying RE equipment (e.g. wind turbines) supports jobs directly, but also encourages the accrual of RE research jobs. This is because investment and enterprise decisions rely heavily on signals as to which markets are supportive and active. A healthy deployment sector indicates a willingness to do business and is likely to attract research and possibly also manufacturing investment to Ireland. Another important point is that a shift from conventional to clean enterprise supports job creation in itself, as such a shift implies higher labour intensity, substituted for spend on imported energy. Studies in the USA and Europe show that the net impact of substitution from conventional to greener sectors is positive mainly due to longer and diversified supply chains, higher labour intensity and higher net-profit margins for greener sectors/ activities. A European Commission (2007) 53 study examined the scenario of a 10% shift towards RE sources compared to non-renewable sources, and found it has a net positive impact on jobs. Kammen et al (2004) 54 reviewed 13 EU and US studies and found that the RE sector generates more jobs per MW of power installed, per unit of energy produced, and per dollar of investment, than the fossil fuel-based energy sector. According to research by the University of California between 1970 and 2005, 54 solar and wind provided stronger marginal returns to labour investments than fossil fuel technologies, while renewable technologies patents showed greater returns to R&D investment relative to fossil fuels. The Renewable and Appropriate Energy Laboratory of the University of California, 53 European Commission (2007), DG Environment, Links between the environment, economy and jobs. 54 Kammen, D. M., Kapadia, K., & Fripp, M. (2004). Putting renewables to work: how many jobs can the clean energy industry generate? renewables.jobs.2006.pdf

16 16 The Case for Sustainable Energy A review and analysis of the economic and enterprise benefits Berkeley (2008) 55 found that RE technologies create more jobs per average MW of power generated and per dollar invested than coal or natural gas. A Center for American Progress (2008) 56 report states that a $100 billion investment in clean energy and efficiency would result in 2 million new jobs, whereas similar investment in conventional energy would create only around 540,000 jobs. The chart and table below display current SEAI estimates for employment (2010/11) in the sustainable energy sector, and a projection to 2020, highlighting the excellent opportunities available through delivery of a sustainable energy system in Ireland. Figure 2: Sustainable energy jobs potential 2010 to ,000 25,000 Renewable Energy 20,000 15,000 10,000 Energy Efficiency 5,000 Enterprise Competitiveness Securing investment as a clean energy location Business cost savings Smart grid Business EE investments Residential retro-fit Sustainable Energy RD&D Other renewables Biomass (heat and electricity) Ocean energy Wind 55 Roland-Holst, D. (2008), Energy Efficiency, Innovation, and Job Creation in California. UC Berkeley: Department of Agricultural and Resource Economics, UCB. 56 Center for American Progress. (2008). Green recovery a program to create good jobs and start building a low-carbon economy. pdf/green_recovery.pdf

17 17 Table 1: Sustainable energy jobs current levels and potential Jobs supported in 2010 Jobs potential in 2020 Renewable Energy 4,040 13,110 Energy Efficiency and 5,870 10,000 Smart Technology Enterprise 570 7,720 Competitiveness Total 10,480 30,830 The following sections highlight the sub-sectors in which the development of a sustainable energy system for Ireland would generate opportunities for employment. A summary table of the jobs opportunity is provided at the end of each section. Renewable energy a Deployment installing renewable energy in Ireland A range of jobs relating to planning, legal, finance, construction, O&M, etc, would be supported. There are good metrics available in terms of jobs per MW in the various stages of deployment, manufacturing, construction and ongoing operation and maintenance for a range of renewable technologies with application in Ireland. The extent of the opportunity is very large, given the potential for export. b R&D Jobs would be created in both university and industry settings (e.g. ESB, IBM, Mainstream, Glen Dimplex, etc). It is an internationally competitive field, so scale and concentration are required. The current investment level is around 20 million per annum. A marked increase occurred in 2006 due to increased government expenditure on academic research, bringing government s contribution to around 70% of the total. 57 Ireland has expertise and reputation in a number of areas. The two most active areas of sustainable energy R&D in the universities and institutes of technology are energy efficiency and bioenergy. Other areas of significant activity are solar energy and electricity grid development. A stronger focus on ocean energy will be needed in future if Ireland is to play a leading role in development of this sector. c Industry There are many opportunities to secure manufacturing operations in renewables, and to build clusters of activity in certain areas. Now is the time to establish credentials. The first signal is success in deployment; this is essential to build credibility among investors and businesses in the other areas. Both research and manufacturing will go where equipment is being installed and used. As can be seen opposite, pursuing our current RE targets for electricity, heat and bioenergy will bring strong opportunity for employment. 57 R&D funding sources (2009): Funded 71% by Irish government, 12% by EU, 17% by private/industry.

18 18 The Case for Sustainable Energy A review and analysis of the economic and enterprise benefits Table 2: Jobs in renewable energy Jobs supported in 2010 Jobs potential in 2020 Basis Wind 1,300 3,490 Total installed capacity increasing to 4,650 MW in 2020 (4,100 MW onshore, 550 MW offshore) Ocean energy 230 2,770 Installed capacity reaching 500 MW by 2020 Biomass for heat and electricity production 900 2, MW th of installed capacity for biomass heating and biogas Other renewables 1,060 3,340 CHP Renewable energy CHP growing to 150 MW by 2020 Landfill (LFG) Increase in capacity from 36 MW to 44 MW in 2020 Hydro Based on current installed capacity Solar thermal (residential and commercial scale) Heat pumps (residential and commercial scale) Increase on current installed capacity (100 MW) to 500 MW in ,680 Increase on current installed capacity (120 MW th ) to 560 MW th in 2020 Sustainable energy RD&D 550 1,100 Expansion of current levels of expenditure in areas such as ocean energy and smart grid Total 4,040 13,110

19 19 Energy efficiency Investments in energy efficiency are associated with job creation in two principal ways. First, jobs are supported directly through initiatives to install energy efficiency technologies and systems (including the manufacture and supply of energy efficiency technologies). Secondly, energy efficiency gains lead to additional spending power which supports additional induced jobs. a Retrofit construction As many as one million Irish homes could be upgraded for improved energy efficiency. In 2010, 75,000 homes were upgraded, supporting almost 5,000 jobs. Around 10,000 jobs could be supported every year through a concerted retrofit programme across the residential and business sectors. The development of expertise in building retrofit provides further export opportunities. b Energy management Ireland has a reputation as an early mover in advanced energy management. This is because of the development of the Irish energy management standard, IS 393, in 2006, which informed the development of the EU standard and in turn informed that of the global standard, ISO The market for this global standard, and associated services, is expected to be considerable. This creates the opportunity to export expertise and services in a fast-growing international market. c Smart grid There is considerable interest in the ICT sector in the applications in energy relating to smart infrastructure, technology and control. A transition to smarter infrastructure, with greater use of software, sensors and controls, has already started, and this plays to Ireland s strengths in this sector. Table 3: Jobs in energy efficiency (EE) Jobs supported in 2010 Jobs potential in 2020 Basis Upgrading residential building stock (Better Energy Homes) Industry and business EE investments (incl. Better Energy Workplaces) 4,820 6,890 Upgrading 100,000 homes per annum 1,020 2,110 Investment in EE improvements via government programmes and by large industry and SMEs estimated at 30m, growing to 50m by 2020 Smart Grid 30 1,000 Smart-meter deployment and some technology development in Ireland Total 5,870 10,000

20 20 The Case for Sustainable Energy A review and analysis of the economic and enterprise benefits Energy and total competitiveness The competitive advantages arising from sustainable-energy action include lower operational costs for businesses, attracting new businesses, and leveraging the wider EU/ international green job opportunities. Business cost reduction can help to create and sustain jobs since firms will be more profitable. Savings in costs of business can greatly improve a company s competitiveness and long-term survival prospects. b Securing investment by offering a clean energy location International firms are increasingly emphasising a desire for access to secure, clean energy in their decisions to locate operations. Businesses are preparing for higher fossil and carbon prices and reconfiguring their activities. They seek locations and skills that support this. This highlights how sustainable energy is important to all sectors of Irish enterprise. a Business cost reduction We have had considerable success in reducing the energy costs of business in all sectors through advanced energy efficiency; many of the largest energy users are now global leaders in efficient design and operation. All sectors can reduce costs, reduce dependency and enhance their sustainability in the transition away from carbon and fossil fuels. A recent cost-benefit analysis demonstrated that SEAI s cost-saving supports to business generate strong economic return. Every euro spent by SEAI in this area generates an overall economic benefit of Table 4: Jobs in enterprise competitiveness Jobs supported in 2010 Jobs potential in 2020 Basis Business and public sector cost savings Securing investment by offering a clean energy location 570 1,720 Based on savings estimates consistent with National Energy Efficiency Action Plan 0 6,000 Low-carbon energy technology leadership incremental to foreign direct investment (FDI); additional value of FDI 2.5% on 2011 baseline Total 570 7,720