he mandate of the COGGER Panel was to assess the feasibility and cost of energy-related greenhouse gas (GHG) emissions reduction in Canada. We focused on the potential for increased energy efficiency and fuel switching and their effect in reducing CO2 emissions by reviewing the extensive literature available on these topics and assessing what it tells us.

1. How much potential for CO2 reduction through energy efficiency and fuel switching exists in Canada that is worth doing anyway over the next several decades? How much of this potential is achievable, assuming different approaches and strategies?
2. What would be involved in achieving much more aggressive energy efficiency and fuel switching targets, if these are necessary for climate stabilization?

What's Worth Doing Anyway?: The Economic Potential for Energy Efficiency and Fuel Switching by 2010

• improvements in the efficiency of energy conversion and end-use; and
• switching to fuels with lower CO2 emissions per unit of useful energy produced.

Comparing estimates of technical and economic potential for these strategies is difficult because of the variety of models, assumptions and time periods used. However, the range of estimates is, with a few exceptions, relatively consistent. Estimates of technical potential--the energy saving that could be achieved in a specified year if the most efficient technologies available in that year were fully implemented, regardless of cost--for the first decade of the next century are mostly in the range of savings in energy use or CO2 emissions of 40% to 50% relative to a reference projection, or 20% to 30% savings relative to base year (usually 1988 or 1990). Most Canadian, provincial, American and sectoral (electric utility, transportation) studies estimate technical potential of this order.

Estimates of economic potential--energy savings that could be achieved in a specified year if all available technologies that yielded net monetary savings (calculated using the real social discount rate) were implemented--are mostly in the range of 20% to 40% savings by 2010 relative to a reference case projection, with a median of about 23%. Relative to 1988 or 1990 many studies show savings in energy use or emissions between 10% and 30%, with a median for all estimates of about 16%.

The existence of a significant economic potential for increased energy efficiency and fuel switching does not guarantee that such potential will be realized. We need to consider how much of that potential can be achieved and how. The COGGER Panel has concluded that achieving the identified economic potential for increased energy efficiency by 2010 will depend upon development of additional demand-side management or energy efficiency programs, that go well beyond current policies and programs, by governments and the energy industry. Evidence suggests that most economic efficiency potential will not happen in the absence of new demand-side policies. More vigorous action is required.

Few provincial or federal government agencies or energy industries in Canada either have in place, or intend to implement, substantial energy efficiency policies that go beyond provision of information to consumers. Many organizations have no plans for, or expectations of, significantly increased levels of energy efficiency and fuel switching. And no organization that responded to our survey projected a stronger CO2 target than emissions stabilization. Many have no emissions targets. And even when a stabilization goal exists, it is not clear that the policies required to achieve even that goal are in place.

Specifically, the Panel finds that:

• It appears to be feasible and cost-effective to achieve Canada's interim target of stabilization of GHG emissions at 1990 levels by 2000 and to achieve an absolute reduction of about 20% by 2010.
• Improved energy efficiency is the key to stabilizing energy related CO2 emissions over the next two decades. Fuel switching plays a much smaller role.
• To meet the targets described here will require achieving virtually all of the economic potential for energy efficiency and fuel switching estimated to be available.
• This economic potential for improved energy efficiency and fuel switching will not come about by itself; government policy will be required to make it happen.
• The most effective form of policy is a combination of government-set targets and timetables, some regulation in appropriate end-use sectors, and a strong emphasis upon market-based instruments to provide incentives for achievement of targets.

How to Do More: The Implications of More Aggressive Emission Reductions

On the demand side, efficiency gains required in Canada for such emission reductions are significant, amounting to average annual reductions in energy intensity about three times higher than projected in many official estimates. Common to these scenarios are a number of energy efficiency measures, including:

• energy retrofits to best available practice of most of the current building stock by the end of the projection period;
• standards for new buildings, and energy-using equipment (including appliances and lighting) equivalent to at least the best available technology in the base year;
• significant improvements in the energy intensity of industrial processes (including major increases in cogeneration); and
• vehicle efficiency improvements to 3.8-2.8 litres/100 km (75-100 mpg) for passenger vehicles, with corresponding improvements in other vehicle types.

On the supply side, most studies project a significant penetration of renewable energy in the electricity generation and transportation sectors. For electricity production, the generating mix switches away from coal, oil and nuclear, to increasing reliance on natural gas (often in the form of cogeneration plants), hydraulic, and some penetration of wind and solar photovoltaics. In transportation, alcohol fuels derived from biomass,and hydrogen produced with solar electricity, are the most common renewable alternatives to current fuels. In other sectors, modest use of new renewable sources of energy, such as direct solar, is supplemented by a significant shift from oil to natural gas, the latter being almost entirely used in efficient integrated energy systems in buildings, and for cogeneration in industry.

These reductions are caused partly by the energy system changes described above, but also by significant changes in lifestyle and economic activity. Common to most of the bottom-up studies that project emissions reductions of the magnitude considered here are a series of assumptions about changes in consumer behaviour and economic structure toward a less consumptive pattern of economic and social development. Such a path would represent a significant departure from that suggested in all reference case projections, which assume no changes in lifestyle or economic structure. For example, these bottom-up studies suggest significant changes in urban form, housing mix, and transportation planning, leading to lower heating demands and reduced use of automobiles and light trucks. One study assumes reductions in per capita consumption of goods and services, and a choice to reduce average work week lengths in a conscious trade-off between income and leisure.

Specifically, the Panel finds that:

• Technology substitution (improved energy efficiency, fuel switching) and broader structural change (urban form, industrial processes) would enable Canada to achieve significant reductions in CO2 emissions; however
• More research needs to be done on achieving emission reductions that would approach the levels estimated to be required, globally, for stabilization of atmospheric CO2 concentrations;
• It is not now possible to say whether achieving such emission reductions will impose significant costs on the Canadian economy; and
• Achieving such emission reductions would likely require a combination of significant improvements in energy efficiency, major changes in the sources of energy used to meet our needs, and substantial changes in economic activity and lifestyle relative to that projected in most reference case forecasts.

Conclusions: Proposed Strategies, Actions and Further Research

• raising the costs of carbon intensive fuels through the use of a carbon tax or tradeable permits for carbon dioxide emissions;
• elimination of implicit and explicit policies that distort energy prices;
• regulations to set minimum efficiency standards for energy using equipment and buildings, including building and home energy labelling systems, and development of appropriate urban planning requirements;
• development of comprehensive community-based building retrofit programs in cooperation with municipalities and local professional and citizens' groups;
• financial incentives to promote adoption of the most energy-efficient technologies;
• advertising and information programs, including energy labeling, to promote energy efficiency; and
• support for ongoing R&D and demonstration projects on efficient energy end-use and production technologies and processes.

The Panel proposes a two-pronged GHG emission reduction strategy:

1. develop policies that will encourage us to achieve cost-effective levels of emission reduction; and
2. prepare for the prospect that Canada will have to move beyond achievement of the "worth doing anyway" potential.

In support of the first goal, the federal, provincial and municipal governments are urged to cooperate in applying a policy framework that will overcome the gap between potential and achievement. This framework should emphasize a combination of market-based policy instruments such as carbon taxes or tradeable emission permits, regulatory approaches (e.g. automobile fuel efficiency standards, building codes), strategies to overcome specific barriers to energy efficiency and fuel switching, and information programs. While official targets and timetables are important, it is even more important to provide clear indications of the linkages between emission reduction targets and energy policy responses. This is all the more important given the division of jurisdiction in Canada between the federal and provincial governments over energy policy issues.

Since the cost-effective potential for emission reduction is "worth doing anyway", there should be no insurmountable barrier to achieving the economic potential we have identified. However, there appears to be an achievability gap in the policy arena. There exist a set of institutional, jurisdictional and attitudinal barriers to attaining the levels of policy coordination and response required to achieve the economic potential for energy efficiency and fuel switching.

With regard to the second prong of the proposed strategy, the approach must be somewhat different. At current and expected prices and technology, this potential is likely not "worth doing anyway" on strict economic grounds alone. Thus the strategy here must be twofold. First, we must pursue approaches intended to reduce the cost of achieving this potential (i.e. convert more of it to "worth doing anyway" potential). This implies a serious commitment to research, development and demonstration. Insofar as this research is successful, it is itself worth doing anyway, since it creates new, cost-effective opportunities for emissions reduction.

Second, we should develop a policy framework that allows speedy adoption of measures intended to realize this larger potential if we should decide to pursue it (e.g. if new knowledge about the costs of climate change warrant it). In other words, the longer-term strategy should be to develop energy systems that are resilient in terms of their ability to respond rapidly and efficiently to changing conditions. On the delivery side, this suggests the use of market-based approaches to policy; on the technological side, it suggests energy policy options that are incremental, have short lead times, and are flexible in that they can be easily adopted or shelved. In turn, this requires a proactive approach to policy analysis which is explorative rather than reactive, in that the focus is on anticipating alternative development paths, with a view to evaluating and choosing preferred approaches, rather than responding to unanticipated surprises.

More research is strongly needed to address some of the important issues involved in trying to develop appropriate energy policy responses in the area of climate change. The key subject-areas requiring further research are (in no particular order):

• integration of other GHGs into the analysis of energy policy options;
• integration of other social and environmental benefits and costs into the analysis of GHG emission reduction, including other emissions (e.g. NOx, SO2), social effects (e.g. employment) and risks (e.g. energy prices, nuclear accidents, future technological developments);
• the size and nature of the achievability gap in energy efficiency, and how it can and should be overcome;
• development of new analytical tools for reconciliation of different modelling approaches and exploration of alternative policy options and paths;
• availability and costs of energy technology options that go beyond the "worth doing anyway" potential, especially on the supply side;
• linkage between GHG emission reduction targets and energy policy responses;
• effectiveness and impacts of market-based approaches to emission reduction (social costing, permit trading, changing the incentive structures for energy companies, etc.);
• appropriate methods to achieve international agreements on targets, measures and collaborative research and action; and
• strategic R&D opportunities that are likely to contribute to the multiple objectives of lowering the cost of GHG emission reduction and sustainable development.

Each of these requires significant new research, the findings of which will aid in the development of appropriate policy responses. However, the lack of knowledge in these areas should not prevent us from taking action. The Panel believes that enough is known about Canadian options for greenhouse gas emission reduction that significant cost-effective steps can be taken now to address this problem and to lay the groundwork for more extensive responses in the future, should they be deemed desirable.