5
Overarching Findings and Lessons Learned from Federal and State Energy Efficiency Policies and Programs

The opportunities described in Chapters 2 through 4 to improve energy efficiency in, respectively, U.S. residential and commercial buildings, the U.S. transportation sector, and U.S. industrial manufacturing are summarized here in Table 5.1, which presents the panel’s conservative and optimistic estimates for cost-effective annual energy savings available in these three sectors in 2020 and 2030.1 The panel’s estimates are not projections; they reflect its assessments of technology potential assuming a rapid rate of deployment, but a rate nonetheless consistent with past deployment rates. If society were to give a higher priority to efficiency, perhaps because of higher energy prices, energy shortages, or concern about greenhouse gas emissions, deployment rates would be faster and the savings would be greater.

To achieve the energy-savings potential outlined in Table 5.1, the manner in which Americans use energy will have to be transformed, and policy actions will doubtless be an integral part of this transformation. Although policy recommendations are outside the scope of this study, in order to inform the policy debate and contribute to a better understanding of how impediments can be overcome, the panel reviewed some of the experience with—and importantly, lessons learned from—policies and programs aimed at influencing energy use in the United States.

1

As discussed in Chapter 3, “Energy Efficiency in Transportation,” the focus of that assessment relates to technologies that could power the nation’s cars and light trucks. If other categories, such as heavy-duty vehicles and aviation, had been included in the analysis, the panel’s estimate of the total savings would be greater. Forthcoming National Research Council reports will provide estimates for these two categories.



The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement



Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.

OCR for page 261
5 Overarching Findings and Lessons Learned from Federal and State Energy Efficiency Policies and Programs T he opportunities described in Chapters 2 through 4 to improve energy effi- ciency in, respectively, U.S. residential and commercial buildings, the U.S. transportation sector, and U.S. industrial manufacturing are summarized here in Table 5.1, which presents the panel’s conservative and optimistic estimates for cost-effective annual energy savings available in these three sectors in 2020 and 2030.1 The panel’s estimates are not projections; they reflect its assessments of technology potential assuming a rapid rate of deployment, but a rate nonetheless consistent with past deployment rates. If society were to give a higher priority to efficiency, perhaps because of higher energy prices, energy shortages, or concern about greenhouse gas emissions, deployment rates would be faster and the savings would be greater. To achieve the energy-savings potential outlined in Table 5.1, the manner in which Americans use energy will have to be transformed, and policy actions will doubtless be an integral part of this transformation. Although policy recommen- dations are outside the scope of this study, in order to inform the policy debate and contribute to a better understanding of how impediments can be overcome, the panel reviewed some of the experience with—and importantly, lessons learned from—policies and programs aimed at influencing energy use in the United States. 1As discussed in Chapter 3, “Energy Efficiency in Transportation,” the focus of that assess- ment relates to technologies that could power the nation’s cars and light trucks. If other catego- ries, such as heavy-duty vehicles and aviation, had been included in the analysis, the panel’s esti- mate of the total savings would be greater. Forthcoming National Research Council reports will provide estimates for these two categories. 

OCR for page 261
 Real Prospects for Energy Efficiency in the United States TABLE 5.1 Panel Estimate of the Potential for Cost-Effective Annual U.S. Energy Savings (in quads) Achievable with Energy Efficiency Technologies in 2020 and 2030 Conservative Estimate Optimistic Estimate 2020 2030 2020 2030 Buildings, primary (source) electricity 9.4 14.4 9.4 14.4 Residential 4.4 6.4 4.4 6.4 Commercial 5.0 8.0 5.0 8.0 Buildings, natural gas 2.4 3.0 2.4 3.0 Residential 1.5 1.5 1.5 1.5 Commercial 0.9 1.5 0.9 1.5 Transportation, light-duty vehicles 2.0 8.2 2.6 10.7 Industry, manufacturing 4.9 4.9 7.7 7.7 Total 18.6 30.5 22.1 35.8 Note: Savings are relative to the reference scenario of the EIA’s Annual Energy Outlook 008 (EIA, 2008) or, for transportation, a similar scenario developed by the panel. See Table 1.2 for more information on the baselines used in the panel’s analysis of the buildings, transportation, and industry sectors. 5.1 OVERARCHING FINDINGS On the basis of its estimates of the energy savings potential outlined in Table 5.1, the panel presents the following overarching finding: Overarching Finding 1 Energy-efficient technologies for residences and commercial buildings, trans- portation, and industry exist today, or are expected to be developed in the normal course of business, that could potentially save 30 percent of the energy used in the U.S. economy while also saving money. If energy prices are high enough to motivate investment in energy efficiency, or if public poli- cies are put in place that have the same effect, U.S. energy use could be lower than business-as-usual projections by 19–22 quadrillion Btu (17–20 percent) in 2020 and by 30–36 quadrillion Btu (25–31 percent) in 2030.2,3 3 2The basis for comparison for the buildings and industry sectors is the reference scenario of the U.S. Department of Energy’s Annual Energy Outlook 2008, produced by the Energy Informa- tion Administration (EIA, 2008), and the panel’s similar but slightly modified baseline for the transportation sector. 3The Committee on America’s Energy Future report (NAS-NAE-NRC, 2009) estimated the amount of possible savings as 15–17 quads (about 15 percent) by 2020 and 32–35 quads (about

OCR for page 261
Overarching Findings and Lessons Learned  A savings of the amount of energy estimated in Overarching Finding 1 would reverse the growth in energy use forecasted by the Department of Energy’s Energy Information Administration (EIA, 2008). Instead of increasing from 99 quadrillion Btu (99 quads) in 2008 to 111 quads in 2020 and 118 quads in 2030, as forecast by the EIA (2008), full deployment of cost-effective, energy-efficient technologies would cause U.S. energy use to fall to 89–92 quads in 2020 and 82–88 quads in 2030. Table 5.1 shows that reducing electricity use in buildings provides the great- est opportunity for energy savings. In fact, these potential savings are so large that, as indicated in Overarching Finding 2, the effects on electricity generation could be dramatic. Overarching Finding 2 The full deployment of cost-effective, energy-efficient technologies in build- ings alone could eliminate the need to add to U.S. electricity generation capacity. Since the estimated electricity savings in buildings from Table 5.1 exceeds the EIA forecast for new net electricity generation in 2030, imple- menting these efficiency measures would mean that no new generation would be required except to address regional supply imbalances, replace obsolete generation assets, or substitute more environmentally benign generation sources. The potential savings summarized above are very attractive. As discussed in Chapters 2 through 4, however, many barriers to the deployment of energy- efficient technologies exist, even though the adoption of such technologies is pro- jected to save money over time. These barriers include potentially high up-front costs, alternative uses for investment capital deemed more attractive, the volatility of energy prices leading to uncertainty with respect to the payback time, and the lack of information available to consumers about the relative performance and costs of technology alternatives. 30 percent) by 2030. Since the release of that report, further analysis by the panel refined the amount of possible savings in 2020 to 17–20 percent.

OCR for page 261
 Real Prospects for Energy Efficiency in the United States Overarching Finding 3 The barriers to improving energy efficiency are formidable. Overcoming these barriers will require significant public and private support, as well as sustained initiative. The experience of leading states provides valuable lessons for national, state, and local policy makers in the leadership skills required and the policies that are most effective. One valuable lesson learned is that the long lifetimes of buildings and some capital equipment present a particularly important barrier to implement- ing energy-efficient technologies. These investments—particularly buildings—can last for decades or even centuries, blocking the implementation of more efficient substitutes. Overarching Finding 4 Long-lived capital stock and infrastructure can lock in patterns of energy use for decades. Thus, it is important to take advantage of opportunities (during the design and construction of new buildings or major subsystems, for exam- ple) to insert energy-efficient technologies into these long-lived capital goods. In the rest of this chapter the panel discusses this and other examples of valu- able experience gained from the implementation of federal and state policies aimed at overcoming barriers to energy savings. The review below concentrates on fed- eral actions, but it also covers some actions taken in two large states, California and New York, as well as some policies adopted by electric utilities. 5.2 ENERGY EFFICIENCY POLICIES AND PROGRAMS Between 1975 and 1980 the federal government adopted a number of laws that established educational efforts and financial incentives for energy efficiency, and it authorized the setting of efficiency standards. More recent legislation has estab- lished minimum efficiency standards for a wide range of household appliances and equipment used in the commercial and industrial sectors, as well as tax incentives to stimulate the commercialization and adoption of highly efficient products and buildings. Over the past 30 years the federal government has also devoted billions of dollars to energy efficiency research and development. In addition, many states

OCR for page 261
Overarching Findings and Lessons Learned  have implemented building energy codes, utility-based energy efficiency programs, and other policies to complement these federal initiatives.4 5.2.1 Vehicle Efficiency Standards In 1975 the United States adopted energy efficiency standards—known as cor- porate average fuel economy (CAFE) standards—for cars and light trucks. These standards played the leading role in the near doubling of the average fuel economy of new cars and the 55 percent increase in light-truck fuel economy from 1975 to 1988 (Greene, 1998). In addition, a tax on inefficient “gas guzzlers” contrib- uted to the rise in vehicle fuel economy during the late 1970s and 1980s (Geller and Nadel, 1994). Had these efficiency improvements not been implemented, the U.S. car and light truck fleet would have consumed an additional 2.8 million bar- rels per day (bbl/d) of gasoline in 2000 (NRC, 2002). The gasoline savings meant lower levels of oil imports and consequently lower trade deficits in the United States compared with what they would have been otherwise. The CAFE standards were met mainly through technological improvements in engines and drivetrains, as well as through vehicle weight reduction (NRC, 2002). The original CAFE standards for cars reached their maximum level in 1985; small increases in the standards for light trucks have been adopted since then.5 With no further increase in standards, the average fuel economy of each type of vehicle (cars and light trucks) remained nearly constant during the 1987–2007 period. In fact, the combined average fuel economy of new cars and light trucks actually declined from a high of 22.0 miles per gallon (mpg) in 1987 to 20.2 miles per gallon in 2006–2007 (estimated on-road performance, not rated fuel econ- omy), due mainly to the shift from cars toward less-efficient sport utility vehicles (SUVs), pickup trucks, and minivans (EPA, 2007a). As a result of declining new- vehicle fuel economy and increasing vehicle-miles traveled, U.S. gasoline consump- tion increased 31 percent from 1986 through 2006 (EIA, 2007). 4This review does not consider energy tax increases that have been enacted over the past 30 years, because such increases have been very modest. The federal tax on gasoline, for example, was increased incrementally from 4¢/gal in 1973 to a total of 18.4¢/gal by 1993, but it has not been increased since then. Corrected for inflation, the gasoline tax in 2006 was only 26 percent greater than it was in 1973. 5Small increases in the light-truck standards were adopted through 2004. More significant but still modest increases were administered starting in 2005. The Energy Independence and Security Act of 2007 mandated more substantial increases, slated to amount to at least a 40 percent in- crease over the 2005 level by 2020.

OCR for page 261
 Real Prospects for Energy Efficiency in the United States One of the flaws in the original CAFE standards was the lower standards for SUVs and other trucks relative to standards for cars, thereby encouraging manufacturers to redesign trucks to serve as passenger vehicles (Gerard and Lave, 2003). However, other factors also contributed to the shift from cars to light trucks, making it difficult to determine the role of CAFE in this regard (Greene, 1998; NRC, 2002). Auto manufacturers blocked efforts to increase the standards for many years despite numerous studies showing that raising the standards was techni- cally and economically feasible (NRC, 2002; Difiglio et al.,1990; Greene and DeCicco, 2000). Pressure to raise the standards grew, however, as energy secu- rity concerns increased. The U.S. Congress enacted the first significant increase in the CAFE standards in more than 30 years as part of the Energy Indepen- dence and Security Act (EISA; Public Law 110-140), which was signed into law by President George W. Bush in December 2007. EISA requires the Depart- ment of Transportation to set tougher fuel-economy standards starting in 2011 until the standards reach at least 35 mpg for cars and light trucks combined in 2020—a 40 percent increase over the current standards.6 EISA also gradually phases out the fuel-economy credits for dual-fuel vehicles, a policy that reduced the effectiveness of the CAFE standards without significantly increasing the use of alternative fuels. It is estimated that the new CAFE standards will save 1.0 million bbl/d of gasoline by 2020 and 2.4 million bbl/d by 2030, while providing more than $50 billion in net economic benefits for consumers (ACEEE, 2007). These estimates include a “rebound effect”—that is, the increase in travel demand due to the reduction in the cost per mile driven as vehicle fuel economy improves. This effect is generally thought to be real but small (Greene, 1998; NRC, 2002; Small and Van Dender, 2007). 5.2.2 Appliance Efficiency Standards Appliance efficiency standards were first enacted by states—including California, New York, Massachusetts, and Florida—during the late 1970s and early 1980s (Nadel, 2002). Appliance manufacturers, disturbed by the patchwork of state standards, then supported the adoption of uniform national standards. National 6The Obama administration recently proposed that these requirements, specified by Subtitle A of EISA 2007, be accelerated.

OCR for page 261
Overarching Findings and Lessons Learned  standards, developed through negotiations between manufacturers and energy efficiency advocates, first became law in 1987. These standards led to dramatic improvements in the energy efficiency of new refrigerators, air conditioners, clothes washers, and other appliances sold in the United States. In 1992, minimum efficiency standards were extended to motors, heating and cooling equipment used in commercial buildings, and some types of lighting products. In 2005, standards were adopted for a variety of “second-tier” prod- ucts, including torchiere light fixtures, commercial clothes washers, exit signs, dis- tribution transformers, ice makers, and traffic signals. With the addition of these new products, national minimum efficiency standards were in place for more than 40 types of products. Appliance efficiency standards eliminate the least efficient products from the marketplace. At times, such standards have been technology forcing—meaning that few if any products could meet the standard at the time that it was estab- lished. This was the case for the standards for refrigerators and clothes washers set by the U.S. Department of Energy (DOE) (Nadel, 2002; Goldstein, 2007). The DOE is authorized to strengthen the minimum efficiency standards on a particular product if it determines that doing so is technologically feasible and economically justified. It is estimated that national appliance efficiency standards saved 88 terawatt- hours (TWh) of electricity in 2000, or 2.5 percent of national electricity use that year (Nadel, 2002). The retirement of less efficient, older appliances, combined with the adoption since 2000 of new and updated standards, is expected to result in energy savings of 268 TWh in 2010, or 6.9 percent of projected national electricity use in that year, and 394 TWh by 2020, or 9.1 percent of projected national electricity use in that year (Nadel et al., 2006). The appliance standards laws include initial energy performance require- ments, but they also direct the DOE to review them periodically and to adopt more stringent standards if technically feasible and economically justified. For example, the standards on refrigerators and freezers first adopted in 1987 have been significantly strengthened twice since then. As shown in Figure 5.1, the com- bination of federal and state standards resulted in a 70 percent reduction in the average electricity use of new refrigerators sold in the United States from 1972 through 2001; during this period the price (in constant dollars) also fell by 62 per- cent, while the refrigerated volume actually increased. New standards on fluores- cent lighting ballasts were adopted in 2000, followed by new standards on water heaters, clothes washers, and central air conditioners and heat pumps. Despite

OCR for page 261
8 Real Prospects for Energy Efficiency in the United States 1800 1972 Electricity Use (Kilowatt-hours per Year) GDP in In Effective Date of New 1600 Intensity State Standards 1978 Structure Effective Date of New 1400 Energy U Federal Standards 1200 1000 800 600 400 1980 1985 1990 1995 2000 Year FIGURE 5.1 Average annual electricity consumption of new refrigerators sold in the United States, 1972−2001. 5.1 Efficiency Source: Geller, 2003. completing these revisions, the DOE has missed legal deadlines for updating stan- dards for about 20 other products. These delays have reduced the energy savings and economic benefits of appliance efficiency standards. Additional appliance efficiency standards were included in EISA. Most note- worthy are those on general-service lamps, standards that will make it illegal to sell ordinary incandescent lamps after the standards take effect. In Phase One, which takes effect in three stages from 2012 to 2014, manufacturers will be able to produce and sell improved incandescent lamps as well as compact fluores- cent lamps (CFLs) and light-emitting diode (LED) lamps that meet the efficiency requirements—that is, the minimum lumens of light output per watt of power consumption. In Phase Two, which takes effect in 2020, only CFLs and LED lamps will qualify unless manufacturers are able to roughly triple the efficiency of incandescent lamps. It is estimated that these new standards will save 59 TWh per year by 2020, in addition to the savings from standards on other products (ACEEE, 2007).

OCR for page 261
Overarching Findings and Lessons Learned  5.2.3 Building Energy Codes Federal legislation passed in 1976 called for the adoption of national stan- dards for building energy efficiency (also known as building energy codes). The building industry strongly opposed this policy, however, and it was eventu- ally converted to voluntary guidelines and design tools (Clinton et al., 1986). Meanwhile, many states and localities adopted mandatory energy codes for new homes and commercial buildings. Model codes, such as the International Energy Conservation Code (IECC) and American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) Standard 90.1, are widely followed by states and localities, thereby bringing some uniformity to building energy codes. The model codes are updated periodically through a consensus-seeking process. As of 2008, 19 states had adopted the 2006 version of the IECC or a more strin- gent code for new homes, and 27 states had adopted the ASHRAE 90.1-2004 or 90.1-2006 code or a more stringent code for new commercial buildings (DOE, 2008). Building energy codes are enforced at the local level throughout the country. There is some evidence that code enforcement and compliance have been weak in various regions (Halverson et al., 2002; Kinney et al., 2003; Khawaja et al., 2007), and a number of jurisdictions have taken steps to simplify their energy codes in order to facilitate compliance. Training architects, builders, contractors, and local code officials can significantly improve code compliance and can also be very cost-effective in terms of energy savings per program dollar (Stone et al., 2002). The DOE provides software tools, technical assistance, and grants to sup- port code adoption and implementation. It is estimated that the influence of building energy codes on new homes and commercial buildings constructed during the 1990s reduced U.S. energy use by 0.54 quad in 2000 (Nadel, 2004). This is a conservative estimate of the impact of energy codes in that it does not consider buildings constructed before 1990 or after 1999. The DOE estimates that if all states adopted the update to the model commercial building energy code approved by ASHRAE in 1999, building owners and occupants would save about 0.8 quad over 10 years (DOE, 2007a). Even more energy savings would result if all states adopted a more recent version of the ASHRAE model standard, such as the 2007 version. Energy codes in general are very cost-effective, with any extra first cost for comply- ing with the code usually paid back through energy savings in 7 or fewer years (WGA, 2006).

OCR for page 261
0 Real Prospects for Energy Efficiency in the United States 5.2.4 Government-Funded Research, Development, and Demonstration From 1978 to 2000, the DOE spent more than $7 billion (1999 dollars) on energy efficiency research, development, and demonstration (RD&D) programs, and as estimated by a report from the National Research Council, some of the most successful RD&D programs are yielding net economic benefits to the nation of around $30 billion (NRC, 2001). DOE-funded research has contributed to the development and commer- cialization of a number of energy-efficient building technologies, including high- efficiency appliances, electronic lighting ballasts, and low-emissivity windows. RD&D programs tend to be most effective (Geller and McGaraghan, 1998; Alic et al., 2003) when they: • Involve collaboration between public research institutions (such as uni- versities and DOE national laboratories) and the private sector, • Focus on multiple technologies and designs, • Contribute to all stages of the innovation and product development process, and • Are complemented by other policies, such as financial incentives or regulations that stimulate market demand. In contrast to the building technology program, DOE’s transportation tech- nology RD&D program has had very little effect on the vehicle marketplace. This result is attributed to the fact that the DOE initially chose to focus on a limited number of advanced engines and power systems, such as Stirling engines, gas turbines, and battery-powered electric vehicles—none of which proved viable because of technological problems, lack of industry interest, and/or lack of market acceptance. The more recent focus on hybrid-electric power trains and fuel cells also has not influenced commercial vehicles so far, although considerable technical progress has been made and these technologies show great promise (NRC, 2008). This experience demonstrates that RD&D projects should be carefully selected and designed, taking into account technological, institutional, and market barriers. The Department of Energy operates a number of programs to promote greater energy efficiency in industry. Until 2007, the DOE funded RD&D mainly in partnership with nine energy-intensive sectors—agriculture, aluminum, chemi- cals, forest products, glass, metal casting, mining, petroleum, and steel. More recently the DOE has shifted RD&D toward crosscutting “technology platforms”

OCR for page 261
Overarching Findings and Lessons Learned  such as industrial reactions and separations, waste-heat minimization and recov- ery, and high-temperature processing. The DOE recently identified nearly 100 technologies that it supported in the past decade that are now commercially avail- able and saving energy to some degree. These technologies are estimated to have saved about 1.1 quads of energy cumulatively and about 0.1 quad in 2005 alone (DOE, 2007b). 5.2.5 Federal Incentives and Grants Federal tax credits were provided for energy efficiency measures purchased by households and businesses in the late 1970s and early 1980s. The credit amounted to 15 percent of the measure cost7 for households and 10 percent of the measure cost for businesses. However, studies were not able to document that the tax credits expanded the adoption of energy efficiency measures (Clinton et al., 1986; OTA, 1992). This result was attributed to the small size of the credits and the fact that the credits applied to commonplace efficiency measures such as home insula- tion and weather stripping, which had already been widely adopted before the credits took effect. These tax incentives cost the U.S. Treasury around $10 billion and were discontinued in 1985. Based in part on this experience, new tax credits were enacted in 2005 for innovative energy efficiency measures that included hybrid, fuel cell, and advanced diesel vehicles; highly efficient new homes and commercial buildings; and efficient appliances. These tax credits were intended to support the commercialization and market development of these innovative technologies but not necessarily to save a significant amount of energy. In addition, a 10 percent tax credit of up to $500 was adopted for energy retrofits to the building envelope of existing homes. Except for the tax credits for advanced vehicles, these new tax credits were slated to expire at the end of 2007, but most were extended as part of the American Recovery and Reinvestment Act of 2009 (ARRA; Public Law 111-5). It is still too early to evaluate the impact of the 2005 tax credits. Low-income households typically spend 16 percent of their total annual income on home energy costs, compared to 5 percent or less for middle- and upper-income households (DOE, 2006). The DOE provides grants to improve the energy efficiency of low-income housing through the Weatherization Assistance 7Measure cost is the full cost for an add-on measure such as insulation or a variable-speed motor drive, but the incremental cost for a higher-efficiency pump or motor.

OCR for page 261
8 Real Prospects for Energy Efficiency in the United States cent, and the commercial and transportation sectors for the remaining 6 percent (Table 5.4). New York’s energy efficiency efforts began in the late 1970s with federal funding for a State Energy Conservation Program (SECP). The funding was small relative to the need, but the efforts initiated through the New York State Energy Office (NYSEO) represented an important beginning in achieving greater energy efficiency and conservation savings and provided experience for government pro- grams working in concert with the private sector. Over the years, the NYSEO was able to develop a diverse portfolio of programs serving the residential, business, and government sectors. These programs took another step forward in the 1980s as a result of receiving significant funding from a legal settlement against Exxon and other oil companies for charging excessive prices for their crude oil in the late 1970s. By 1989, New York State had received more than $335 million, including interest, from this funding source. New York’s energy efficiency efforts directed at the electric utility sector began in earnest in 1984, driven largely by concerns about the construction delays and escalating costs that were plaguing the Shoreham and Nine Mile Point 2 nuclear power plants and the Somerset coal plant. At the time, DSM programs were viewed by New York’s Public Service Commission (PSC) as potential alterna- tives to continued investment in new, central-station power-generation projects. As a result, investor-owned utilities were required by the PSC to develop pilot-scale DSM programs that included energy efficiency and load management. The pro- grams were initially funded at approximately $25 million annually, representing approximately one-quarter of 1 percent of gross annual utility revenue. Following an assessment of the pilot programs in 1987, the PSC concluded TABLE 5.4 Comparison of Per Capita Electricity Use in the United States and in New York in 2006 United States New York Difference Difference (kWh/person) (kWh/person) (kWh/person) (%) Residential 4,514 2,508 2,006 41 Commercial 4,341 3,938 403 8 Industrial 3,378 776 2,602 53 Transportation 25 145 –121 −2 Total 12,258 7,367 4,890 100

OCR for page 261
Overarching Findings and Lessons Learned 8 that DSM programs were a viable and economic alternative to new energy supply resources and that DSM should be considered on an equal footing with supply resources in integrated resource planning. At a minimum, it was recognized that DSM could delay the need for peaking capacity, even if the need for new baseload power supplies could not be completely eliminated. The job creation and environ- mental benefits associated with reducing electricity use were also identified and quantified as further justification for investment in DSM. Utilities were directed by the PSC to assess DSM potential, identify cost-effective programs, establish DSM goals, and develop long-range DSM plans, including incentive, information, and education programs. In the early 1990s, the PSC implemented a revenue decoupling mecha- nism to allow utilities to recover revenues lost from energy efficiency reductions (determined by the amount by which actual sales revenue fell below the forecast adopted in the most recent rate case). Along with the revenue decoupling mecha- nism, the PSC approved financial incentives for achieving energy efficiency goals, as well as financial penalties for falling short of goals. The incentive scheme proved to be effective and was successfully adapted to each investor-owned utility (DeCotis, 1989). By 1993, DSM spending by investor-owned utilities in New York State reached $280 million (equivalent to about $400 million in 2007 dollars; Figure 5.8), a dramatic increase from the initial $25 million spent in 1984. Additional DSM spending by the state’s energy authorities raised the state’s annual investment in energy efficiency resources in 1993 to about $330 million (about $470 million in 2007 dollars). New York began the process of restructuring its electricity industry in 1996. A key element of this effort was that investor-owned utilities were required to sell generation assets to independent power producers. As a result, New York’s investor-owned utilities were transformed into transmission and distribution com- panies. With the transition to wholesale market competition, the responsibilities for administering DSM programs were transferred to the New York State Energy Research and Development Authority (NYSERDA). The utilities’ current role, following the divestiture of their generation assets, is to collect program funds from ratepayers through a system benefits charge. The funds are provided to NYSERDA, under the oversight of the PSC, to administer energy efficiency, load management, environmental protection, and research and development programs. NYSERDA has been administering statewide SBC programs in cooperation with the New York Power Authority and the Long Island Power Authority since 1998.

OCR for page 261
88 Real Prospects for Energy Efficiency in the United States By 2007, annual investment in energy efficiency by New York’s energy- related authorities increased to nearly $300 million (see Figure 5.8). Accounting for the cumulative annual impact of programs implemented since 1990, New York has lowered its annual electricity use by nearly 12 TWh, or about 8 per- cent of end-use sales (Figure 5.9). This 12 TWh of demand-side resources has reduced New York’s CO2 emissions by about 6.5 million tons per year, equiva- lent to removing about 1.3 million cars from the roads annually. All SBC energy efficiency programs (administered by NYSERDA) are required by the PSC to be cost-effective, which means that the present value of estimated lifetime monetary benefits exceeds the costs of implementing the programs. Through year’s end in 2007, the benefit-cost ratio, counting only direct utility system benefits for New York’s portfolio of SBC-funded energy efficiency programs, is 6.2 (on a present- value basis). Including nonenergy benefits, such as improved comfort, safety, and productivity, the benefit-cost ratio increases to 9.9, and adding macroeconomic 500 2000 Incremental Energy Efficiency Achievements LIPA Utilities 450 1800 NYPA Energy Efficiency Millions of 2007 Dollars per Year (GWh) NYSERDA 400 1600 350 1400 Restructuring Competitive Wholesale (Gigawatt-hours) Process Initiated Market Start-Up 300 1200 Start of 250 1000 System Benefits 200 800 Charge 150 600 Profi Decouple 100 400 from Sale 50 200 0 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year FIGURE 5.8 New York State’s annual energy efficiency expenditures (in constant 2007 5.8 Efficiency dollars) and achievements, 1990−2007. Note: EE = energy efficiency; GWh = gigawatt-hours; LIPA = Long Island Power Authority; NYPA = New York Power Authority; NYSERDA = New York State Energy Research and Development Authority. Source: Courtesy of NYSERDA.

OCR for page 261
Overarching Findings and Lessons Learned 8 14,000 8% of End-Use Sales in 2007 Building Code 12,000 LIPA Energy Efficiency Gigawatt-hours per Year NYPA Energy Efficiency 10,000 NYSERDA Energy Efficiency Utilities Energy Efficiency 8,000 6,000 4,000 2,000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year FIGURE 5.9 New York State’s energy efficiency achievements, 1990 through 2007: annu- 5.9 Efficiency al electricity use. Note: EE = energy efficiency; LIPA = Long Island Power Authority; NYPA = New York Power Authority; NYSERDA = New York State Energy Research and Development Authority. Source: Courtesy of NYSERDA. benefits (e.g., valuing added employment) increases the ratio to 13.2 (NYSERDA, 2008). In April 2007, then-New York Governor Eliot Spitzer initiated an energy effi- ciency program of unparalleled proportions, known as the “15 by 15” program, by calling for a 15 percent reduction in electricity use in 2015 compared to the business-as-usual projected level of electricity use for that year (Spitzer, 2007). 5.5 LESSONS LEARNED What lessons can be drawn from the wide-ranging experience encapsulated in this chapter regarding policies and programs aimed at increasing energy efficiency at

OCR for page 261
0 Real Prospects for Energy Efficiency in the United States both the national and the state level? Most importantly, the experience demon- strates that well-designed policies can result in substantial energy savings. This is clear from the fact that the policies taken together reduced national energy use in 2006 by more than 13 percent according to the estimates in Table 5.2. Also, leading states such as California and New York have been able to increase energy efficiency more than other states have, resulting in greater benefits for citizens, businesses, and the environment. The experience shows that minimum efficiency standards can be a very effec- tive strategy for stimulating energy efficiency improvements on a large scale, espe- cially if standards are updated periodically. Minimum efficiency standards have been a key part of both federal and state energy efficiency efforts. Such standards should be technically and economically feasible and should provide manufacturers with enough lead time to phase out the production of nonqualifying products in an orderly manner. Government-funded RD&D contributed to the development and commer- cialization of a number of important energy efficiency technologies. Experience has demonstrated that RD&D can take many years to pay off, and that attention should be devoted to commercialization and market development as well as to technological advancement. Also, a prudent RD&D portfolio includes high-risk, potentially high-payoff projects as well as those involving lower-risk, incremental improvements (NRC, 2001). Although there is evidence that energy prices influence energy efficiency and levels of energy consumption, as illustrated in Figure 5.4, neither the federal gov- ernment nor states have used energy taxes to any significant degree as a strategy for stimulating greater energy efficiency. Financial incentives, including those provided by utilities, can increase the adoption of energy efficiency measures. Financial incentives should be carefully designed, however, avoiding costly efforts that have little or no incremental impact on the marketplace. One way to avoid this outcome is to provide incentives for newly commercialized technologies—in particular those with a high first cost but with good prospects for cost reduction as demand grows, production expands, and learning occurs. Information dissemination, education, and training can increase the aware- ness of energy efficiency measures and improve know-how with respect to energy management. The ENERGY STAR® labeling program exemplifies the impact that a well-conceived, widely promoted labeling and education effort can have. Educa-

OCR for page 261
Overarching Findings and Lessons Learned  tion and training are also important for the successful implementation of building energy codes. In general, energy efficiency policies and programs work best if they are inte- grated into market transformation strategies, addressing the range of barriers that are present in a particular situation (Geller and Nadel, 1994). In the appliance market, for example, all of the following are being carried out simultaneously: government-funded RD&D helps to develop and commercialize new technologies; product labeling educates consumers; efficiency standards eliminate inefficient products from the marketplace; and incentives offered by some utilities and states encourage consumers to purchase products that are significantly more efficient than the minimum standards. This combination of actions has led to dramatic improvements in the efficiency of refrigerators and other types of appliances, and the efficiency gains and energy savings are continuing today. The experience described above suggests that energy efficiency policies should be kept in place for a decade or more in order to ensure an orderly development of energy efficiency markets. At the same time, policies such as effi- ciency standards and targets, product labeling, and financial incentives should be revised periodically. This will increase their effectiveness and reduce program costs, for example, by phasing out incentives as particular technologies become well established in the marketplace. Dynamic policies steadily improved resi- dential appliance efficiency, whereas stagnant policies failed to maintain car and light-truck efficiency improvements during the 1990s and the early part of this decade. 5.6 CHANGING CONSUMER BEHAVIOR The energy efficiency policies and programs discussed in this chapter focus pri- marily on increasing the energy efficiency of buildings, appliances, vehicles, and industrial operations. Less attention has been devoted to changing consumer behavior—for example, encouraging people to drive less or buy fewer and/or smaller vehicles, appliances, or homes. Consumer behavior can be influenced in a number of ways (PIEE, 2007), including the following: • Offering convenient alternatives such as practical and high-quality mass transit services;

OCR for page 261
 Real Prospects for Energy Efficiency in the United States • Using financial incentives such as taxing energy, taxing carbon diox- ide and other pollutant emissions, or taxing inefficient devices more heavily; • Increasing awareness, for example by educating people about the envi- ronmental consequences of their lifestyle choices; and • Providing feedback on energy consumption—for example, by including easy-to-understand comparative information on energy use on monthly utility bills. It remains to be seen if changing behavior can play a larger role in energy efficiency efforts in the coming decades. 5.7 REFERENCES ACEEE (American Council for an Energy-Efficient Economy). 2007. Energy Bill Savings Estimates as Passed by the Senate. Washington, D.C.: ACEEE. Available at http://www. aceee.org/energy/national/EnergyBillSavings12-14.pdf. Alic, J.A., D.C. Mowery, and E.S. Rubin. 2003. U.S. Technology and Innovation Policies: Lessons for Climate Change. Arlington, Va.: Pew Center on Global Climate Change. Berry and Schweitzer, 2003. Metaevaluation of National Weatherization Assistance Program Based on State Studies, 1993-2002. ORNL/CON-488. Oak Ridge, Tenn.: Oak Ridge National Laboratory. CEC (California Energy Commission). 2002. The Summer 2001 Conservation Report. Sacramento, Calif.: CEC. CEC. 2007. Table 42, California Energy Demand 2008-2018: Staff Revised Forecast, Final Staff Forecast, 2nd ed., CEC-200-2007-015-SF2. Sacramento, Calif.: CEC. November 27. CEC. 2008. 2008 Energy Action Plan Update. CEC-100-2008-001. Sacramento, Calif.: CEC; San Francisco, Calif.: California Public Utilities Commission. Available at http:// www.fypower.org/pdf/cpuc_eap_update.pdf. CEE (Consortium for Energy Efficiency). 2007. U.S. Energy-Efficiency ProgramsA $2.6 Billion Industry. Boston, Mass.: CEE. Clinton, J., H. Geller, and E. Hirst. 1986. Review of government and utility energy conser- vation programs. Annual Review of Energy 11:95-142.

OCR for page 261
Overarching Findings and Lessons Learned  CPUC (California Public Utilities Commission). 2007. CPUC Decision 07-09-043, September 20, 2007. Interim Opinion on Phase 1 Issues: Shareholder Risk/Reward Mechanism for Energy Efficiency Programs. Document COM/DGX, ALJ/MEG/ rbg, issued September 25, 2007. Available at http://docs.cpuc.ca.gov/published/ final_decision/73172.htm. DeCotis, P.A. 1989. Balancing shareholder and customer interests in incentive ratemaking. Electricity Journal 2(10):16-23. Difiglio, C., K.G. Duleep, and D. Greene. 1990. Cost effectiveness of future fuel economy improvements. Energy Journal 11(1):65-68. DOE (U.S. Department of Energy). 2006. Weatherization Works! Fact Sheet. Washington, D.C.: DOE Office of Energy Efficiency and Renewable Energy, Weatherization Assistance Program. DOE. 2007a. Energy Department Determines That Model Commercial Building Code Will Save Energy and Benefit Consumers. Washington, D.C.: DOE Office of Energy Efficiency and Renewable Energy, Industrial Technologies Program. Available at http:// www.energycodes.gov/implement/determinations_com_news.stm. DOE. 2007b. Impacts. Industrial Technologies Program: Summary of Program Results for CY 2005. Washington, D.C.: DOE Office of Energy Efficiency and Renewable Energy, Industrial Technologies Program. DOE. 2008. Status of Energy Codes. Washington, D.C.: DOE. Available at http://www. energycodes.gov/implement/state_codes/index.stm. EIA (Energy Information Administration). 2007. Annual Energy Review 2006. DOE/ EIA-0384(2006). Washington, D.C.: Department of Energy, Energy Information Energy Administration. EIA. 2008. Annual Energy Outlook 2008. DOE/EIA-0383(2008). Washington, D.C.: Department of Energy, Energy Information Administration. . Eldridge, M., B. Prindle, D. York, and S. Nadel. 2007. The State Energy Efficiency Scorecard for 2006. Washington, D.C.: American Council for an Energy-Efficient Economy. Elliott, R.N., and M. Spurr. 1999. Combined Heat and Power: Capturing Wasted Energy. Washington, D.C.: American Council for an Energy-Efficient Economy. EPA (Environmental Protection Agency). 2007a. Light-Duty Automotive Technology and Fuel Economy Trends: 1975 Through 2007. EPA420-R-07-008. Washington, D.C.: EPA Office of Transportation and Air Quality. EPA. 2007b. Energy Star® and Other Climate Protection Partnership Programs: 2006 Annual Report. Washington, D.C.: EPA Office of Air and Radiation. FEMP (Federal Energy Management Program). 2006. Annual Report to Congress on Federal Government Energy Management and Conservation Programs: Fiscal Year 2005. Washington, D.C.: DOE Federal Energy Management Program.

OCR for page 261
 Real Prospects for Energy Efficiency in the United States Geller, H. 2003. Energy Revolution: Policies for a Sustainable Future. Washington, D.C.: Island Press. Geller, H., and S. McGaraghan. 1998. Successful government-industry partnership: The U.S. Department of Energy’s role in advancing energy-efficient technologies. Energy Policy 26:167-177. Geller, H., and S. Nadel. 1994. Market transformation strategies to promote end-use effi- ciency. Annual Review of Energy and the Environment 19:301-346. Gerard, D., and L.B. Lave. 2003. The Economics of CAFE Revisited: A Response to CAFE Critics and a Case for Fuel Economy Standards. Washington, D.C.: AEI-Brookings Joint Center for Regulatory Studies. Goldstein, D.B. 2007. Saving Energy, Growing Jobs: How Environmental Protection Promotes Economic Growth, Profitability, Innovation, and Competition. Point Richmond, Calif.: Bay Tree Publishing. Greene, D.L. 1998. Why CAFE worked. Energy Policy 26:595-614. Greene, D., and J. DeCicco. 2000. Engineering-economic analyses of automotive fuel economy potential in the United States. Annual Review of Energy and Environment 25:477-535. Halverson, M., J. Johnson, D. Weitz, R. Majette, and M. LaLiberte. 2002. Making residen- tial energy codes more effective: Building science, beyond code programs, and effec- tive implementation strategies. Pp. 2.111-2.122 in Proceedings of the 2002 ACEEE Summer Study on Energy Efficiency in Buildings. Washington, D.C.: American Council for an Energy-Efficient Economy. Karney, R. 2006. ENERGY STAR® appliance market update. Presentation at 2006 ENERGY STAR® Appliance Partner Meeting, September 26-28, Newport, Rhode Island. Available at http://www.energystar.gov/index.cfm?c=partners.pt_meetings_ archive. Khawaja, M.S., A. Lee, and M. Levy. 2007. Statewide Codes and Standards Market Adoption and Noncompliance Rates. Report prepared for Southern California Edison. Portland, Oreg.: Quantec, LLC. May 10. Kinney, L., H. Geller, and M. Ruzzin. 2003. Increasing Energy Efficiency in New Buildings in the Southwest: Energy Codes and Best Practices. Boulder, Colo.: Southwest Energy Efficiency Project. August. Kushler, M., D. York, and P. Witte. 2006. Aligning Utility Interests with Energy Efficiency Objectives: A Review of Recent Efforts at Decoupling and Performance Incentives. Washington, D.C.: American Council for an Energy-Efficient Economy. October. Nadel, S. 2002. Appliance and equipment efficiency standards. Annual Review of Energy and the Environment 27:159-192.

OCR for page 261
Overarching Findings and Lessons Learned  Nadel, S. 2004. Supplementary Information on Energy Efficiency for the National Commission on Energy Policy. Washington, D.C.: American Council for an Energy-Efficient Economy. Nadel, S. 2007. Energy Efficiency Resource Standards Around the U.S. and World. Washington, D.C.: American Council for an Energy-Efficient Economy. September. Nadel, S., and H. Geller. 1996. Utility DSM: What have we learned? Where are we going? Energy Policy 24:289-302. Nadel, S., J. Thorne, H. Sachs, B. Prindle, and R.N. Elliott. 2003. Market Transformation: Substantial Progress from a Decade of Work. Washington, D.C.: American Council for an Energy-Efficient Economy. April. Nadel, S., A. de Laski, M. Eldridge, and J. Kleisch. 2006. Leading the Way: Continued Opportunities for New State Appliance and Equipment Standards. Report ASAP- 6/ACEEE-A062. (Updated from and supersedes report ACEEE-051.) Washington, D.C.: American Council for an Energy-Efficient Economy; Boston, Mass.: Appliance Standards Awareness Project. March. NAPEE (National Action Plan for Energy Efficiency). 2006. National Action Plan for Energy Efficiency. Washington, D.C.: Department of Energy and Environmental Protection Agency. July. NAS-NAE-NRC (National Academy of Sciences-National Academy of Engineering- National Research Council). 2009. America’s Energy Future: Technology and Transformation. Washington, D.C.: The National Academies Press. NRC (National Research Council). 2001. Energy Research at DOE: Was It Worth It? Energy Efficiency and Fossil Energy Research 1978 to 2000. Washington, D.C.: National Academy Press. NRC. 2002. Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards. Washington, D.C.: National Academy Press. NRC. 2008. Review of the Research Program of the FreedomCar and Fuel Partnership: Second Report. Washington, D.C.: The National Academies Press. NYSERDA (New York State Energy Research and Development Authority). 2008. New York Energy $martSM Program, Evaluation and Status Report, Year Ending December 31, 2007. Final Report. Albany, N.Y.: NYSERDA. March. OTA (Office of Technology Assessment). 1992. Building Energy Efficiency. Washington, D.C.: OTA. PIEE (Precourt Institute on Energy Efficiency). 2007. Presentations from the 2007 Behavior, Energy, and Climate Change Conference, Sacramento, Calif., November 7-9. Available at http://piee.stanford.edu/cgi-bin/htm/Behavior/2007_becc_conference.php. Rosenfeld, Arthur H., and Patrick McAuliffe. 2008. Opportunities in the Building Sector: Managing Climate Change. Staff paper CEC-999-2008-016. California Energy Commission. June. Available at http://www.energy.ca.gov/2008publications/cec-999- 2008-016/cec-999-2008-016.pdf.

OCR for page 261
 Real Prospects for Energy Efficiency in the United States Shipley, A., A. Hampson, B. Hedman, P. Garland, and P. Bautista. 2008. Combined Heat and Power: Effective Energy Solutions for a Sustainable Future. ORNL/TM-2008/224. Oak Ridge, Tenn.: Oak Ridge National Laboratory. Small, K., and K. Van Dender. 2007. Fuel efficiency and motor vehicle travel: The declining rebound effect. Energy Journal 28:25-51. Spitzer, E. 2007. “15 by 15”A Clean Energy Strategy for New York. Speech by Governor Eliott Spitzer, April 19. Available at http://www.ny.gov/governor/keydocs/ CleanEnergySpeech-final.pdf. Stone, N., D. Mahone, P. Eilert, and G. Fernstrom. 2002. What’s a utility codes and stan- dards program worth, anyway? Pp. 9.341-9.351 in Proceedings of the 2002 ACEEE Summer Study on Energy Efficiency in Buildings. Washington, D.C.: American Council for an Energy-Efficient Economy. Sudarshan, A., and J. Sweeney. 2008. Deconstructing the “Rosenfeld Curve.” Working Paper. Draft. Palo Alto, Calif.: Stanford University. June 1. Available at http:// peec. stanford.edu/modeling/research/Deconstructing_the_Rosenfeld_Curve.php. Tonn, B., and J.H. Peretz. 2007. State-level benefits of energy efficiency. Energy Policy 35:3665-3674. WGA (Western Governors’ Association). 2006. Energy Efficiency Task Force Report. Denver, Colo.: WGA. Available at http://www.westgov.org/wga/initiatives/cdeac/ Energy%20Efficiency-full.pdf. York, D., and M. Kushler. 2006. A nationwide assessment of utility sector energy effi- ciency spending, savings, and integration with utility system resource acquisition. In Proceedings of the 2006 ACEEE Summer Study on Energy Efficiency in Buildings. Panel 8, Number 24. Washington, D.C.: American Council for an Energy-Efficient Economy.