6. Assessment of Potential

6.1 Summary of Studies

The potential for energy efficiency improvement may be measured in three ways, technical, economic and achievable.⁴⁰ These may be defined as follows:

• Technical Potential. Energy savings that would occur if existing technologies were totally replaced with the most efficient models available, regardless of cost.
• Economic Potential. Energy and capacity savings that would occur if existing technologies are replaced with those whose amortized cost is less than or equal to the full long-run societal cost of supplying and delivering the energy that would otherwise be used. Depending on the perspective chosen, this could include externalities, such as the cost of emissions.
• Achievable Potential. Proportion of the savings identified in the Economic Potential Forecast that could realistically be achieved (note: in some cases, non-economic savings may be achievable due to other factors). Achievable Potential recognizes that there are a variety of barriers to the achievement of economic potential (see Section 7). Some of these barriers can be overcome through the use of policy measures or programs that target decision-making by firms and individuals. The degree of practicality and aggressiveness of these measures can be used as a basis for defining various scenarios of "achievable potential".

Potential is usually measured in comparison to a baseline scenario, called the Business as Usual (BAU) scenario that incorporates a natural rate of energy efficiency but assumes a static policy stance by governments and utilities.⁴¹ Achievable potential varies with assumptions on the potential for accelerated capital stock turnover. Typically, the "most likely" scenario considers that equipment is replaced at the end of its normal lifespan.

DSM programs tend to develop least-cost opportunities first. Some of the "low hanging [EE] fruit" has already been attained in residential, commercial and industrial sectors. This includes higher efficiency appliances, motors and lighting. The potential that remains may be more difficult to capture because:

• The target sub-markets become more challenging, e.g., small commercial, mid- and high-rise apartments, small and medium sized industry;
• The solutions can become more complex, e.g., moving to process integration and balance of plant measures in industry; and
• Changes in the way institutions operate or relate to each other may be necessary.⁴²

On the other hand, it is arguable that there are still large portions of these sectors that have not been developed systematically. It is also possible that some of the previous "low hanging fruit" has grown back.

EE potential estimates also depend on assumptions about market penetration of new technologies such as LED [Light Emitting Diode] technology or carbon composites for auto bodies. However, much of the cost-effective potential lies with technologies that have been available for a long time, such as insulation or heat pumps.

Summary of Estimates of Potential

Exhibit 6.1 summarizes recent studies in various sectors and service areas. Results typically show economic potential reductions in the 10 - 20% range and achievable potentials at less than 10%. For brevity, Exhibit 6.1 provides only the economic and achievable potential.⁴³ In the latter case, we have chosen from the available scenarios (usually two but sometimes more) the one considered most "likely" as well as one that constitutes a stretch and thus represents an upper bound of what is reasonably achievable. For example, in the case of the first study (DSM Potential in Canada), 14% represents the energy savings beyond business-as-usual that would occur if all decisions were made on the basis of what is best from the perspective of the economy as a whole. In this case, 3% is what is considered achievable given a reasonable effort (consistent with historical levels), whereas 10% involves a scenario of relatively aggressive policies and programs.

The least-studied sector is transportation. The most current transportation study in Canada is of GHG reduction options and was done by the Climate Change Transportation Table in 1999 (see Exhibit 6.1). In the U.S., the National Academy of Sciences conducted a study in 2002 of the effectiveness and impact of Corporate Average Fuel Economy (CAFE) standards, finding that technologies existed to significantly reduce fuel consumption within 15 years.⁴⁴ The study has been interpreted to suggest that it is both technically feasible and cost effective to raise the average fuel economy of new passenger cars and light trucks from 24 miles per gallon (9.8 l/100km) to 37 mpg (6.4l/100km) within 10 to 15 years (a 54 percent improvement in fuel efficiency and 35 percent improvement in fuel consumption), even with gasoline prices as low as US$2.50 a gallon (C$0.78/l).⁴⁵ Another study conducted in 2005 concluded that U.S. fuel economy could be improved cost-effectively by approximately 29 percent over a 10-15 year period, using a feebate (combination of fee and rebate) set at US$1000 per 0.01 gallon per mile, with a gasoline price of US$1.50 a gallon.⁴⁶ Note that for both studies, the improvement applies to new vehicles and it would take several years for the effect to permeate the on-road fleet.

Analysis of potential feebates in Canada has been undertaken by Transport Canada, using a modified version of the US model, including updated cost estimates, concluding that a feebate of $1,000 per litre per 100 km could reduce fuel consumption of new vehicles by about 17% after 10 years; and produce fuel savings sufficient to outweigh the technology cost to manufacturers, when the fuel savings are valued using objective social criteria (i.e. summed over vehicle lifetimes and discounted with a social discount rate, rather than the apparently much lower consumers' valuations, based on shorter-term savings and/or higher discount rates).⁴⁷

A Broader Outlook on the Energy Efficiency Potential

A common feature of many of the energy efficiency potential studies is that they are focused on a fairly narrow range of opportunities, defined by current technology and by a traditional Demand Side Management philosophy (i.e. focused on end-use specific technologies).⁴⁸ When future technologies and improvements in price and effectiveness of current technologies are taken into account, the potential can rise substantially. If potential changes in behaviour are also factored in (influenced through a variety of social marketing measures and/or economic instruments) the potential rises more. A fully comprehensive estimate of EE potential could go still further. Substantially greater savings are available from a broader "sustainability" approach, in which higher EE is intrinsic to the way things are done in general.

Many scenarios that result in higher EE contain expressions of 'whole-system' concepts like transit-oriented development, advanced housing, or integrated communities. As long-lived energy-using capital stock turns over, the possibilities for realization of whole-system concepts also increase. Therefore the long term (20+ years) achievable potential using a "sustainability" approach may be substantially greater than the estimates provided above. Over a twenty-year period, there is still relatively low turnover of key capital stock, such as transportation infrastructure and buildings. However, there would be time for complete, or near-complete replacement of vehicle, appliance and most commercial equipment stocks, and enough time to begin to bring whole-system thinking into effect. If the "denominator" of EE is defined more broadly, the scope for improvement also expands. For example, if all passenger-km are "equal" then mode shifts in urban transportation and freight could have a large positive effect. A great deal depends on oil sands production technology, since that segment is both very energy-intensive and growing very rapidly. In both oil sands and electricity generation, the GHG issue tends to dominate EE, as the key technology shifts tend to involve use of different primary energy sources -- nuclear, coal, natural gas and renewables in electricity, and the source of steam in oil sands.

Exhibit 6.1: Summary of Selected Conservation Potential Studies