MIT's Moniz discusses 'game changers' for clean energy future

What conditions will spur progress on clean energy and help reduce greenhouse gas emissions in the United States? During today's E&ETV Event Coverage of the Energy Information Administration's 2011 Energy Conference, Massachusetts Institute of Technology physics professor and former Department of Energy Undersecretary Ernest Moniz says cost reduction is the key element behind shifting toward clean energy sources. Moniz explains how game changers, like innovation, and demand reduction will shift the outlook for the United States' energy future.


I might say, in Richard's statement about the game changers, clearly technology is what one goes to almost immediately when one hears those words, but, as he said, and I fully agree, it's also about policies and markets.

And I would add a fourth, which is a business model innovation as yet another aspect that I think will be critical for the kinds of transformations that we are talking about. Great, so first, talking about game changers, the first thing is to ask, well, what's the game that we're trying to change?

Now, many of you are familiar -- oops, that didn't work, with this Sankey diagram of -- this is from Livermore, kind of the flows of energy from primary sources on the left, sometimes through intermediate energy carriers like electricity, and then to the end markets in buildings, industry, transportation and the like.

But it's worth, you know, I think going back and recalling some of the implications of this, roughly, almost -- I mean more than 85 percent fossil fuel, 95 percent thermal sources when you include nuclear. One sees the almost entire dependence of the transportation sector on oil.

One sees, in the gray in the upper right, the issue from thermal sources of unused, if you like, heat. And this kind of lays out, in many ways, much of the agenda as we think about transforming the system to address CO2, to address security concerns and to address the needs of supplying the needs, the energy services, not only in the United States, but for almost 7 billion people in the world today, many of whom, as you know, are dramatically underserved with energy, and then 9 1/2 perhaps billion by midcentury.

So, we're going to talk about some of the technologies and policies and the like for changing this game to meet those objectives. But let me borrow a slide from our friend Arun Majumdar at ARPA-E, in which he has emphasized also the need for acceleration of transformation well beyond that which has been historically the case in energy.

Again, this is Arun's slide on the left. He listed a whole bunch of 20th-century game changers, not obviously only in energy, this is much broader. And then, by the way, electrification, of course, was the one on that list named by the Academy of Engineering as the number one engineering achievement in the 20th century. But then the perspective that we need some kind of comparable set of game changers in the energy industry and we need it on a timescale more like 20 years, rather than the kind of historical 50-year timescale.

OK, well, that's fine, that's our charge I guess, but let's also remember the specific characteristics of the energy system. Multitrillion dollar per year revenues, very capital intensive, the commodity business in the sense that the superduper new energy technologies seldom provide a new function.

They just provide the same function a bit less expensively perhaps or a bit more cleanly, etc., but that means we are very, very cost sensitive. In fact, I'll be perfectly honest, I would say that many of my innovative colleagues at MIT hate the statement that the objective of their technology innovation is cost reduction, pure and simple.

We'll come back to that. It's a business with very established, efficient supply chains, big customer bases, etc. It provides essential services for all activities. Reliability is generally valued more than innovation. Highly regulated and always will be because of the essential services.

And, consequently, also invites extreme political interest, shall we say. That's a euphemism. The point is, this is not the list you would associate with a nimble system easily transformed in a 20-year time period, let's say.

But it's important we understand, this is-these are essentially intrinsic characteristics of this massive energy delivery system. We've got to figure out how to innovate and implement innovation within this set of constraints and not just wish that they'd somehow magically go away.

OK, another part of the condition is that this is a select set of countries, GDP per capita, CO2 per capita, total CO2. Without spending time on this, it just emphasizes when you see the very different pattern like China with the largest CO2 emissions, but still relatively small GDP and CO2 per capita versus the United States versus the least developed countries, etc., one can see that also on the international sphere there are clearly, for good reasons, divergent sets of priorities.

We also must work within that system to move forward. This just repeats the challenges. I won't go over it again. The energy services requirement, while still decarbonizing and providing energy security and, again, the fundamental question is how are we going to significantly decrease energy and carbon intensity accommodating economic growth through cost reduction basically in technology?

So, now let's get a little more focused. This is a slightly complicated table, not because it's EIA data, it's just inherently put together in a complicated way, and just focus on the 2006, because I'm too lazy to update it. CO2 emissions in the United States racked up by primary fuel and, again, in state, except that electricity has subsumed the primary fuels supplying it.

That's why the coal numbers are so small, because in the United States, obviously, almost all the coal is used for electricity. My point is this is going to start guiding us to where we prioritize our discussion. There are two large numbers in that table, petroleum serving transportation and electricity serving buildings.

So it kind of tells you if it's the CO2 you're after, we're talking here about efficient buildings, efficient vehicles, decarbonizing electricity and alternative fuels for some linear combination of security and carbon reasons. And so those are the four areas in which we'll, if we have time, at least we'll make some comments about the game changers that's really going after where the carbon is.

Just to, again, remind us of the challenge, these here are nothing but numbers, OK? Just running down numbers. The left-hand column gives today's sources, in terms of terawatt hours, for the various power sources in the United States, adding up to roughly 4 trillion kilowatt hours, nearly half coal, etc.

And the second column, of course, is the CO2 associated with those fuels and, obviously, coal completely dominates the CO2 emissions. Now comes pure numbers. Imagine at 2050, 5 trillion kilowatt hours, some assumptions in population growth, etc. and let's just do the numbers. How would we meet an 83 percent reduction in this sector, in the power sector?

Well, 83 percent reduction leaves you 0.4, which happens to coincide with what gas does today. So roughly speaking, you know, one way of looking at it is we keep the gas, the coal goes and we need to make this up, assuming hydro is fixed, with an enormous increase in some combination of nuclear, renewables and CCS.

We can choose a 2 to 3x increase in nuclear and a 20 to 10x increase in renewables and CCS. We can put nuclear to zero, post Fukushima, if we choose. In which case, it's 30x for the rest. But it gives you an idea of the kind of transformation that would have to be in place to meet that kind of a goal, which is the administration economy-wide goal.

And, finally, before getting in now again to the next level of focus, let me just say a few words on oil and the energy security issue. We'll clearly focus mostly on the carbon issue, but let's just say a few words on here.

And I would like to -- I mean there are many-there are technology approaches, policy approaches to address sudden disruptions in oil supply, to increase and diversify supplies and technology solutions for "weakening" the addiction.

But I would like to posit that the core issue is really the inelasticity of the transportation fuels market, its near total dependence upon oil. And what real security means is, in effect, introducing arbitrage in fuel choice at the point of use, which in this case is the consumer level.

This is, by the way, a theme that many of -- Jim Woolsey, for example, has been emphasizing. It's really about the strategic nature of oil as the primary security issue. So, in fact, a first game changer that I would note here, which doesn't really require any particularly new technology steps, is going to flex fuel vehicles, open fuel standards in which different feedstocks, oil, biomass, natural gas, possibly electricity are all available at the point of use.

That is really the key, quite independent of whether oil use itself goes up or down, OK? Now, we would like to minimize oil dependence. We want to stop exporting dollars, a billion dollars a day for example. But I would, again, posit the real issue around here is at this arbitrage, the point of use, and that's something that we could be pursuing today at very, very modest incremental cost.

OK, I'm going to use the scenario. It's the result of an economic model in one of our studies, the natural gas study. Please do not interpret this as a prediction, OK? This is running an economic model subject to a constraint and the constraint in this particular case is that CO2 is reduced through a pricing mechanism by 50 percent to midcentury.

And no offsets, etc., an honest 50 percent. Now, you can interpret that as you wish. It's the U.S. power sector. As I've already said, decarbonizing electricity is certainly one of the major pathways. We'll come back to that. Let me just say a few things of what this tells you and it shouldn't be really surprising, it's just that the economic model, you know, ruthlessly produces it.

First of all, the top of the graph, going from 4 trillion kilowatt hours up to nearly double that, is what you would have in business as usual. That is without the carbon policy, OK? And the crosshatched region is essentially the demand reduction produced in the model with the carbon pricing.

First message, and, again, this is very much I think in line with the table I showed earlier, demand reduction is a critical part of achieving these kinds of goals in terms of CO2 reduction. Part of that is efficient technology in the building and vehicle sectors. Although, much of it as well is overall demand reduction in terms of the readjustment of the economy and the input factors.

Now, as we go to the generation side, what does it say? It's kind of obvious. First coal goes out. Coal is the most carbon intensive and so it gets driven out of the system. Again, this is a ruthless economic model as opposed to a political real model. But it kind of tells you where do you have to go? You drive coal out.

Secondly, because we have, in the United States in particular, now so much gas, gas plays an enormous role as a bridge to some future. And the question marks there is, is it a bridge to somewhere or a bridge to nowhere?

Then eventually gas itself becomes too carbon intensive and it gets driven out of the system for the zero carbon alternatives. Now, in this particular run, nuclear ended up dominating, but what it really is, is it's essentially zero carbon. It's whatever combination of nuclear, renewables and CCS is most economic in the various regions and areas of implementation.

So, it's a pretty simple picture. You drive out the most carbon intensive. You bridge with low carbon intensity eventually to a zero carbon region. So, it kind of tells us what are the three main things we need to start doing to achieve this kind of transformation. Repeat, demand reduction. Number two, the gas substitution for coal. And number three, innovate like hell so that we have a bridge to somewhere, that we have, in fact, the cost-effective, zero carbon technologies available when we need them. In fact, preferably even before we need them, because it would be great if we could even squash this in time much more to the left. That is, make it a shorter bridge.

OK, so with that, let me turn now to some of the technology pathways specifically. And I won't go through this whole table, but it kind of repeats some of the things I've said, in particular with my Michelin rating system.

Efficiency and carbon free electricity and storage down below are those that I would put with the three-star rating, followed by things like alternative transportation fuels, natural gas production and a few other technologies, including things like smart grids.

I'm going to draw on examples, not surprisingly, from quite a lot of work with my MIT colleagues, but, clearly, this is just representative of an enormously larger body of work going on across the country in universities, labs, and companies.

So first a few words about-on the building side, and one theme that I'm going to also tried to thread through this, I already referred to Arun Majumdar's slide on ARPA-E, but I will say it explicitly. That I think in the DOE, in the last couple of years, with energy frontier research centers, ARPA-E, hubs, I think these are innovative approaches to stimulate innovation and I will come back to the issue at the end of supporting those.

Looking at the built environment, I think an important point is that we can't just focus on the building technologies themselves if we are ever going to scale this rapidly to significant demand reduction. It's the building systems, the linked infrastructure systems, the value chains, the community systems in terms of regulatory issues, etc.

And I think this is a concept that, in fact, is embodied in the DOE hub for the built environment. Now, clearly, there are in addition-so I think actually, first of all, thinking about it this way may be the beginning of changing the game. It's been a frustrating one in terms of making progress on the built environment.

Now, there are, of course, a number of technologies. These are some of the ones at MIT that are being worked on and elsewhere, with a general theme frankly of changing surfaces, often using nanostructures for changing services, for developing new kinds of LEDs, etc. And these are clearly, and I would say not surprisingly, important in this built environment context.

But I'd like to also emphasize another totally different point and that is especially when we now think more globally, although there are lessons to be learned for the United States as well, think more globally. I think we have to think in a little bit different way that we are-we call frugal engineering.

That too often we thought about just kind of things cascading down to a very undeveloped context and that's just probably the wrong way to think about it. The right way to think about is probably, in some sense, almost inventing a new discipline of what is the engineering you do of products and systems appropriate to those environments?

This is a particular example by a colleague at MIT, John Ochsendorf, of a brand-new way of approaching buildings with complete local use of non-toxic materials, etc., etc., won World Building of the Year, that's only in the building sector. The same is true in the transportation sector, etc.

But I think this is a concept developing much more interest, including in our major corporations, Jeff Immelt, not using these words, but, for example, it's very much talked about, about the different engineering approach to products for these companies. And I think this is a game changer if we can go ahead.

All right, so that was just one little snippet on the demand side. Second was the gas for coal, so let me say a few words about that, again, from our study. I won't spend a lot of time on this, but basically the left-hand panel is our supply cost curve for natural gas in the United States.

There's a lot of gas. But on the right side of more interest I think for this purpose is to take the median or the mean cost curve on the left and decompose it into different sources of gas. And, of course, the big news here, this is -- we all know it's big news. This is a quantitative statement of it.

The big news is at the low prices, the low break-even prices, like four dollars, the shale gas is huge. I mean that's the real message, it's at the lower ends of the cost curve, the shale gas, as an enormous supplement, in fact even larger than what remains in the conventional gas production for the United States, which, of course, is a rather mature gas producing country.

So, with that background and this, what Dan Yergin calls the shale gale, let's look at this issue of substitution. Can we really make that gas for coal substitution, particularly in the obvious condition of not having a carbon policy in this country, or least a pricing policy? We'll put aside what EPA is doing at the moment.

So here what you find is a picture just to kind of guide your eye. What it shows is the following. In every state the left-hand bar is proportional to the kilowatt hours produced by coal in that state divided into efficient and inefficient coal plants arbitrarily defined as a break at a heat rate of 10,000.

So a heat rate above 10,000 is the purple bar, the inefficient plants, and the green are heat rates below 10,000. The right-hand bar is a fiction. It is the amount of kilowatt hours you could produce in that state if you ran the NGCC plants up to 85 percent capacity factor.

You should probably know the average capacity factor today is just over 40 percent. So we have a lot of unused gas capacity, that's the message. And the right-hand bar tells you what you can do in that virtual world. The message obviously is there are many parts of the country where there is a tremendous amount of substitution available without even any significant capital investment. That's really the message.

In fact, when we then run a more detailed model with transmission constraints, etc., for ERCOT, since ERCOT is its own country, this is the dispatch curve that we get. And I'll just say that the conclusion is that tomorrow, if you decided to re-dispatch NGCC ahead of the inefficient coal plants, you could have a 22 percent reduction of CO2 in the power sector in ERCOT tomorrow.

In our full report coming out, you'll find that the number is almost that large for the country as a whole and the cost of doing so would be equivalent to the order of a $16 a ton CO2 emission price. So pretty low. So it gives you an idea that now, in this country already, we're going to see some coal plants going out. Well, some have gone out.

And particularly if the mercury rule at the EPA goes through, we expect the order of a 30 percent reduction in this decade and that would keep us-that would even put us ahead of that CO2 reduction trajectory without a carbon policy, giving us a little time hopefully to develop that carbon policy.

Finally, in this, using the recent EIA ARI report, now looking globally, this is a-this shows for a variety of countries technically recoverable shale reserves and below it the 2009 consumption in those countries. And, obviously, what one sees is that there is, at least nominally, an enormous potential which would change -- which would be a game changer on the global geopolitics of gas.

And, by the way, we would endorse U.S. support for, in fact, having a freely functioning global gas market, which we don't have today. But we believe that would be in our security interests and there's a lot of potential here from unconventionals to affect that.

OK, let me now turn to the third part, which is the zero carbon alternatives and say a little bit-well, given the time, I may skip some of these, but I was going to say something about nuclear, CCS and solar, but maybe we'll save some of those for the questions.

Anyway, this is a table from our 2009 report looking at levelized costs for new build nuclear, coal and gas. The only thing I want to say here is that the base case shows that nuclear is on the high side, but there are two factors that could dramatically influence that. One is even a modest cost on CO2 emissions, like $25 a ton, changes the game quite substantially.

And secondly, the last column is the reduction from 8.4 to 6.6 cents that one would have if the risk financing premium that we include in our base case were eliminated. In some sense, that is the purpose of the loan guarantee program, which has not really gotten off the ground very, very aggressively shall we say.

But it is to demonstrate the construction, presumably on budget and on schedule, of new nuclear plants, which would then at least work down this risk premium. So these are very, very important. However, we also have, obviously, the Fukushima situation. And, while unresolved, I think it is fairly clear that there are some pretty good bets that cost will go up, maybe only modestly, maybe it's a minor change in how spent fuel is managed, maybe dramatically with substantially changed design basis accidents. We don't know, but directionally costs will go up.

Life extension of existing plants I would say, despite the statements of the NRC to date, clearly will get more scrutiny and if that results in not having a substantial number of life extensions, I remind you at least we, in all of our projections, we've already baked in all the life extensions.

And if they don't happen, we've got tens of thousands of megawatts to worry about. Maybe new passively safe nuclear, which is what we priced on that previous slide, is part of that. That will be an interesting discussion.

We also expect that spent nuclear fuel will be managed differently. What we would like to see is that this gets us off the dime and moves us towards moving fuel to consolidated storage. Finally, the R&D focus will shift from pie-in-the-sky fuel cycles to better operation of LWRs and of waste management. And I'll skip that.

Well, I'll just say that, again, a DOE hub, MIT is a partner in an Oak Ridge led hub developing brand-new simulation tools for complex engineered systems. This is a game changer in many dimensions, including in nuclear and including looking at what I believe will be the new priorities for looking hard at the safety and operation of light water reactors.

But, again, the hubs are in the middle of it. And, finally, I'm not picking a winner here, but I'll just note that the small modular reactors may be very interesting in this context. For those of you not familiar with it, the idea is to go to abandon the gigawatt to a 1.6 gigawatt scale, instead go down to somewhere maybe in the 50 to 300 megawatt scale, with the idea that one can overcome the loss of economy of large-scale by the economy of manufacturing.

The idea is you manufacture these in a factory, on a full humming factory line with all the benefits that has for learning and cost reduction. Very interesting concept, we don't know if it will work, I mean if it will work on the economics. But it's an example of where we have to go to go forward, in my view, as the 2012 administration budget requests did start on the pathway of demonstrating, particularly the light water reactor-based small modular reactors.

But I will note, there is a policy conundrum in my view that has not been addressed and that is that this is not a case where like with the loan guarantees you can go in and support one of those designs and one of those designs and one of those designs and there are about 10 designs competing right now, because the whole cost proposition is the ability to get a full manufacturing line.

We don't need one of these and one of these, we need 15 of those. That is a conundrum for certainly government support moving forward with this. But this is an example I think of a very important technology policy intersection that we have to figure out. I'm going to try to end pretty soon, so let me say a little bit about CO2 and geological sequestration.

Clearly, we need a-we still need an extensive-frankly, we basically have not gotten off the dime in this country in terms of really demonstrating sequestration, which obviously can be a huge game changer, given our coal resources and our coal politics. So, we really have to get on with the issue of sequestration with many megatons per site and we have to get moving. I will just say that-and there was a report also posted yesterday at MIT from a symposium on the issue of looking at CO2 enhanced oil recovery as the pathway to finally getting the sequestration issues addressed.

Not well-known, we are already using 65 megatons a year of CO2 for enhanced oil recovery. That's like 10 gigawatts worth of coal plant. Of course, it's almost all natural sources. Those sources are getting expensive.

We can work down the cost of CCS for the demonstration phase by specifically coupling it to a design for a CO2 enhanced oil recovery strategy and that is something, again, that we think could change the game in terms of moving forward. I should say this was a joint MIT/UT Austin effort.

The second statement I would make however is that I personally believe that once we've finally do this job, that at least scientifically, sequestration at large scale will look safe and reasonable to do. However, the carbon capture side is just way too expensive.

With today's technology I think it's optimistic to be thinking that we could get down to 60 or $70 a ton of CO2 with enough learning. Well, $70 a ton of CO2 translates to six cents a kilowatt hour on a supercritical plant. It's just costed out of the competition.

So the real thing here is we need a technology game changer and ARPA-E is looking at a whole bunch of approaches, which are a much earlier stage. We need a breakthrough that cuts the cost down by a factor to whatever, as opposed to incremental 20 percent changes.

Lots of new ideas out there. I think it is perfectly credible that we can find a breakthrough technology here, because up to now we haven't really even thought about it. All we've done is what we do too often in the energy space, port in a technology developed for a different reason, in this case amien capture in the petrochemical business.

So, you know, I think I'm reasonably optimistic, but this will require a new technology. I think I'm going to -- I'm going to skip my solar slides. I have silicon, beyond silicon, grid integration. I will mention one thing on the -- OK, I'll mention one thing on the intermittent renewables, wind and solar, in terms of game changers.

We really need to get a much better way of addressing the complex, integrated system dynamics for managing intermittence with appropriate backup, appropriate firming, etc. We need new, transparent, dynamic simulation models. We also need regulatory innovation, at least in the sense of strengthening capacity markets in the United States, in my view, if we are going to really move out in this direction.

Again, I'm going to skip this and just -- I'm going to skip vehicles and batteries and just end by putting on a different hat. And this is my hat, as Richard mentioned, as a member of PCAST. Last November PCAST did produce a report to the president on accelerating the pace of change in energy technologies and the importance of doing so as part of an integrated federal energy policy.

That last line, integrated federal energy policy, can quite justifiably lead to questions like what is that? And in some sense what we're arguing is why don't we try to get one for the first time? And to do so can only be done by working across the entire administration.

The idea -- I mean the Department of Energy does not have the scope or the stroke to integrate all of the energy, environmental, security, industrial policy, fiscal policy, agricultural policy that we need. So, what we recommended is a process that we termed the Quadrennial Energy Review, before everything else started to be called quadrennial, but so be it.

And, again, the idea is, without going into detail, that -- well, a couple of things. One is if we continue to do energy policy the way we have with, frankly, no analytical base to speak of in the policy construct, we may as well not bother.

So, for example, we simply need to build up the kind of engineering economic analysis tools that we need to do policy in a serious way, which, if you think about it, might even be helpful to establishing something that has less of a partisan tinge eventually.

To do this it's got to be led out of the executive office of the president to have the convening power, but that's not the place where you want to put the mechanism to actually be able to execute this.

So the department of energy, we argue, should be appointed as the Executive Secretariat for this administration-wide effort and should be the locus for the initial first steps, because in our view it will take four years to build up the apparatus to have a serious, integrated quadrennial energy review.

But the first step -- and the good news is from our point of view, it's going on now. Secretary Chu announced a couple of months ago that DOE is now executing, and there's a draft out for public comment on the scope and the charge, what they're calling the Quadrennial Technology Review. So it's the first step.

It will be more technology focused. Then the idea is to build from the inside out eventually to a comprehensive policy. So that's one major point and we will be guardedly optimistic that this can be sustained.

The second issue is we need more money. We need about $10 billion a year more for a serious RD&D program in the energy space. We have an argument in the report as to how you get to that number. I won't bother you with it because it's kind of infantile and silly, but the point is the following.

In the end, there's no magic number from pure thought. The number really, in the end, comes from building up the programs. However, it's a very different charge, let's say the Department of Energy, to build up a program where you think you're talking about $15 billion rather than $5 billion.

So, it's really the way you condition the planning and that will eventually lead to the number. And, by the way, this is out of the American Innovation Council's report showing that, as a fraction of GDP at least, we are at the bottom. And, by the way, the extra 10 billion, roughly speaking, puts you up to where Japan is and the number that we think is right.

There's still the question now, now that we've absolutely got a fantastic argument for why we need $10 billion more, we will now ask, OK, well, now where do you find it? And what we said is, well, look, you're not going to find it in the congressional appropriations process.

Back to the future, the only place to find it, and whether we can assemble the political will is very unclear, it's got to be on a small charge in energy. A mil per kilowatt hour, 4 billion; two cents a gallon liquid fuels, 4 billion. You know, you're kind of talking in the right ballpark, right?

Now, it's clear this can only work if the industry and consumers, perhaps as represented by regulators, come together and say we need this for the future and we'll come together and support it. Otherwise, politically, it's as dead as it can be. There's no point even trying it, OK?

But that's kind of the program that we laid out in terms of, I think, how we developed the policy and the only thing that we can figure out as a credible way of paying for it on the technology side. And I'll end with this slide, which is one example of a historic is success.

So, let's go back to our current favorite subject of unconventional gas. This is coal bed methane and what you see here is an interesting interplay. On the left, those light blue bars are the initial -- going back to '78, the initial DOE funding of some very basic work on reservoir characterization for unconventional resources. That was then picked up, if you like, the green bars, by GRI.

GRI no longer exists. GRI is exactly what I'm talking about. However, in the back-to-the-future sense, how was that funded? It was funded by a small charge on gas and transportation. It was industry guided and this was then the applied and demonstration work associated with developing these technologies.

But very importantly, the red line was the time-limited tax incentive put in place for unconventional production. So the technology was being developed, you had the technology, but then you had an incentive which only went up to wells drilled until 1992.

And the green curve is the gas that got the tax incentive. It ended and the blue is the still increasing, now major resource. The point is, this is exactly the kind of integrated thinking that we need from this QER to get the game changing technologies out there, incentivized, and put in place in an economically rational way, in contrast to some of our current policies. Thank you.

[End of Audio]



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