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Real Prospects for Energy Efficiency in the United States 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.
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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 2008 (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, transportation, 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 policies 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 2 The 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 Information Administration (EIA, 2008), and the panel’s similar but slightly modified baseline for the transportation sector. 3 The 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
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Real Prospects for Energy Efficiency in the United States 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 greatest 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 buildings 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, implementing 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 projected 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.
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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 implementing 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 example) 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 valuable experience gained from the implementation of federal and state policies aimed at overcoming barriers to energy savings. The review below concentrates on federal 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 established 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
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Real Prospects for Energy Efficiency in the United States 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 corporate 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” contributed 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 barrels 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 economy), 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 consumption increased 31 percent from 1986 through 2006 (EIA, 2007). 4 This 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. 5 Small 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 increase over the 2005 level by 2020.
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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 technically and economically feasible (NRC, 2002; Difiglio et al.,1990; Greene and DeCicco, 2000). Pressure to raise the standards grew, however, as energy security 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 Independence and Security Act (EISA; Public Law 110-140), which was signed into law by President George W. Bush in December 2007. EISA requires the Department 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 6 The Obama administration recently proposed that these requirements, specified by Subtitle A of EISA 2007, be accelerated.
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Real Prospects for Energy Efficiency in the United States 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” products, including torchiere light fixtures, commercial clothes washers, exit signs, distribution 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 established. 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 requirements, 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 combination 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 percent, while the refrigerated volume actually increased. New standards on fluorescent lighting ballasts were adopted in 2000, followed by new standards on water heaters, clothes washers, and central air conditioners and heat pumps. Despite
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Real Prospects for Energy Efficiency in the United States FIGURE 5.1 Average annual electricity consumption of new refrigerators sold in the United States, 1972–2001. Source: Geller, 2003. completing these revisions, the DOE has missed legal deadlines for updating standards 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 noteworthy 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 fluorescent 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).
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Real Prospects for Energy Efficiency in the United States 5.2.3 Building Energy Codes Federal legislation passed in 1976 called for the adoption of national standards for building energy efficiency (also known as building energy codes). The building industry strongly opposed this policy, however, and it was eventually 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 stringent 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 support 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 complying with the code usually paid back through energy savings in 7 or fewer years (WGA, 2006).
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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 commercialization 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 universities 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 technology 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, chemicals, forest products, glass, metal casting, mining, petroleum, and steel. More recently the DOE has shifted RD&D toward crosscutting “technology platforms”
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Real Prospects for Energy Efficiency in the United States such as industrial reactions and separations, waste-heat minimization and recovery, and high-temperature processing. The DOE recently identified nearly 100 technologies that it supported in the past decade that are now commercially available 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 insulation 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 7 Measure 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.
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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 programs 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 alternatives 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 programs 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 (kWh/person) New York (kWh/person) Difference (kWh/person) Difference (%) 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
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Real Prospects for Energy Efficiency in the United States 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 environmental 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 mechanism 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 mechanism, 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 companies. 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.
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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 percent 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, equivalent 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 FIGURE 5.8 New York State’s annual energy efficiency expenditures (in constant 2007 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.
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Real Prospects for Energy Efficiency in the United States FIGURE 5.9 New York State’s energy efficiency achievements, 1990 through 2007: annual 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 efficiency 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
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Real Prospects for Energy Efficiency in the United States both the national and the state level? Most importantly, the experience demonstrates 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 effective strategy for stimulating energy efficiency improvements on a large scale, especially 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 commercialization 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 government 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 awareness 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-
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Real Prospects for Energy Efficiency in the United States 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 integrated 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 efficiency 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 residential 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 primarily 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;
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Real Prospects for Energy Efficiency in the United States Using financial incentives such as taxing energy, taxing carbon dioxide and other pollutant emissions, or taxing inefficient devices more heavily; Increasing awareness, for example by educating people about the environmental 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 conservation programs. Annual Review of Energy 11:95-142.
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