WHAT WILL DRIVE MORE ENERGY EFFICIENCY

Energy Efficiency Policy in the United States: Overview of Trends at Different Levels of Government
Elizabeth Doris, Jaquelin Cochran, and Martin Vorum, December 2009 (National Renewable Energy Laboratory)

SUMMARY
Who will Energy Efficiency benefit more, the users who get all the energy and cost-saving advantages or the investors who get all the investment opportunities? The answer is both. It's an everybody-wins competition. Everybody saves on their energy bill, the power supply is more secure, the climate is cooled, the environment is cleaned, jobs boom and entrepreneurs get rich.

The biggest winner is the national economy. Aside from the budget-healing results from the private sector opportunities, it is estimated that every public dollar invested in Energy Efficiency returns $2, $3 or perhaps even $4 in energy savings. That money can be reinvested in the building of New Energy infrastructure that will have more and better returns farther along.

Energy Efficiency is also the biggest bang for the buck: Investment in Energy Efficiency buys the cheapest emissions-free kilowatt-hours there are because it produces kilowatt-hours that don’t have to be generated. Energy visionary Amory Lovins calls them Negawatts.

The obvious next question is, "why isn’t this already being done?" Researchers at the U.S. Department of Energy (DOE) National Renewable Energy Laboratory (NREL) have been studying just that question. Energy Efficiency Policy in the United States: Overview of Trends at Different Levels of Government goes back to the pioneering California efficiency measures of the 1970s and catalogues the policies that have been used at the 3 levels of government (federal, state, and local) to drive Energy Efficiency in the 4 major economic sectors (buildings, transportation, industrial, and power).

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The paper comes up with 4 key findings about Energy Efficiency (EE) policies, a topic surpassed only by transmission in its unsexiness:
(1) Driving EE requires leadership and leadership is emerging at all 3 governmental levels;
(2) Policies to drive EE vary and no accepted method for comparing their effectiveness has emerged;
(3) As technologies and opportunities advance, EE policies will be more effective if their implementation is coordinated across the 3 levels of government and the 4 economic sectors; and
(4) The experience from implementing EE policies in a single economic sector will be instructive to their implementation in the other sectors.

The paper thoroughly documents its claims about the value of EE, with complete references and links to 2009 studies by McKinsey, the International Energy Agency, Gigaton Throwdown and WBCSD, a 2008 APS study and a 2007 Intergovernmental Panel on Climate Change study, among others.

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COMMENTARY
That there has so far been a failure to take advantage of the myriad and economically attractive opportunities in Energy Efficiency (EE) suggests there are significant market barriers and other resistance. Government policies can target such barriers and resistance and drive the implementation of EE.

The purpose of the paper is to provide stakeholders (legislators, regulators, and business and consumer groups) with the information they need to develop an effective national EE program.

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Some elaborations on the 4 key findings:
(1) Driving EE requires leadership and leadership is emerging at all 3 governmental levels: Most EE policy progress so far has been at the state and local levels. California’s plan is a model that has been adopted in a number of other states with continued success. Going forward, federal leadership can benefit from these successes.

(2) Policies to drive EE vary and no accepted method for comparing their effectiveness has emerged: The challenge is to find metrics that can distinguish between the effectiveness of the policy and the the effectiveness of the implementation and to accurately measure energy savings.

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(3) As technologies and opportunities advance, policies will be more effective if their implementation is coordinated across the 3 levels of government and the 4 economic sectors: Existing policies have addressed narrow concerns and specific needs. Strategically, a policy could obtain much bigger results with a coordinated national action plan.

(4) The experience from implementing EE policies in a single economic sector will be instructive to their implantation in the other sectors: Similar policy tools (baseline standards, beyond-baseline incentives, labeling, technical assistance, and public leadership) are used with different emphases in the 4 economic sectors. Because of the relative strengths of governing jurisdictions, political expediencies, limitations of technologies and economics, a comprehensive assessment of barriers to EE is the only way to create broadly effective policies.

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Legislative and Regulatory Strengths

The strengths of federal policy are in its scale:
(1) EE can come early in the commercialization process and across the national marketplace.
(2) The federal government can create standard uniformity (like the Energy Star appliance program and the national vehicle fuel economy standard) to minimize regulatory complexities and maximize policy impacts.
(3) The federal government can access specialized technical assistance and deliver it to state and local governments and private industries to facilitate implementation.

The weakness of federal policy is that it can lead to over-regulation. Too many rules will constrict market growth.

The strengths of state policy are in its balance of large-scale impacts and tailored mandates and incentives:
(1) State regulated building codes allow for variations in climate, economics, and power supplies while retaining energy-consumption controls and code uniformity.
(2) State-specific incentives attract and support emerging market industries like New Energy technologies.
(3) State jurisdiction over most utilities (to optimize the use of electricity-generating resources) allows demand side management and can allow public benefits funds (PBF) or system benefit charges (SBC) from utility bill charges to flow to EE programs. Assured funding for EE reduces long-term risk to private-sector EE investors.

Local government policies have limited-scale monies and ranges but can be fine-tuned to meet specific community needs:
(1) Local jurisdiction over zoning, planning, and building permits is used to serve the needs of local residents, businesses and the local environment.
(2) Implementation of federal and state policies takes place at the local level and community-level input comes most immediately back to local governments. (Local governments control how federal and state mandates are implemented and who and what the implementation does or does not benefit.

All 3 can lead by example through EE programs, acquisition of EE technologies and advocacy for EE. All 3 can establish aggressive EE standards for buildings and vehicles that will save everybody money, create markets for emerging EE technologies and educate the public about EE.

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Policy Drivers: The 3 levels of government can all work toward common EE goals while each exercises its own unique advantages. Air quality and energy security, for example, are issues of concern at every level of government but policies that drive EE to obtain them differ at the 3 levels of government.

Metrics: What makes measuring the impact of EE policies so difficult is (1) EE policy implementation overlaps with New Energy policy implementation; (2) multiple EE programs can have simultaneous impacts so that energy savings from any particular policy is uncertain; (3) some EE policies are tied to economic impacts and designed to drive retail sales and boost manufacturing so they cannot be accurately measured according to their energy savings; and (4) some changes in energy use result not from policies but from changes in the economic context, the weather or the state of New Energy and Energy Efficiency technologies.

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EE improvements in the aggregate are measured at the federal level through changes by economic sector in energy intensity (the total U.S. energy consumed per dollar of gross domestic product). Lower energy intensity equals increased EE. This does not incorporate specific policy impacts but only reflects energy use relative to the economy (and many question the accuracy of GDP as a measure of the economy). U.S. energy intensity has decreased steadily since 1985. Part of that is structural change and part is increasing efficiency.

At state and local levels, policies are only measured when the interest and financial capability are available and usually have ancillary objectives (job creation, electricity prices, environmental impacts). They are typically based on modeled energy savings, not actual findings. Though relevant locally, such metrics are not useful in the aggregate, especially because methodologies differ so widely.

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Buildings consume 40% of U.S. energy (72% of the electricity consumption and 36% of the natural gas consumption). New power plants are built primarily in service to buildings. 87% of the growth in electricity sales from 1985 to 2006 was due to building sector demand. The 5 most common types of policies used to drive building sector EE are:
(1) Building codes that require EE;
(2) Appliance standards that require EE;
(3) Labels and consumer information that influence economic decisions about appliances and building purchases;
(4) Financial (tax credits) and non-financial (expedited permitting) EE incentives;
(5) Research and development of EE technologies with the goal of making zero-energy buildings cost-competitive.

The goal of these policies is to transform the market, opening and expanding it, so that EE can succeed in the marketplace. There are 2 categories of such policies: Those that reduce barriers (also called standard setting and mandates, or “push” policies) and those that increase accessibility to EE technology (also called financial and non-financial incentives or “pull” policies).

Federal policies create national standards (vehicles, appliances) that give manufacturers uniformity. Federal financial incentives fund the costly transition to the marketplace for promising but unproven technologies. Federal labeling requirements are crucial to the consumer education process. And the federal government supports research and development.

State governments have taken building code design away from localities. Their control of electric utilities allow for the use of financial incentives to drive adoption of demand management programs.

Local governments’ role is in the enforcement of building codes. Some local governments offer incentives to developers (expedited permitting for efficient buildings) and model efficiency in municipal buildings.

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Transportation to move people and goods consumes 28% of U.S. energy. More efficient transportation would reduce the fuel used to drive each mile and reduce the total vehicle miles driven (1) by reducing the use of single-occupant vehicles and increasing the use of public transit, and (2) by increasing the tractor-trailer transport of goods with the use of barges and trains.

EE policies for transport focus on developing and deploying new technologies that increase fuel efficiency and creating incentives to change how people and goods are moved. Such policies fall in 6 categories:
(1) Standards requiring minimum efficiencies;
(2) Labeling, with which consumers can make informed choices;
(3) Financial and non-financial incentives aimed at both manufacturers to develop more efficient vehicles and consumers to purchase more efficient vehicles;
(4) Technical assistance to the public and private sectors to adopt and implement fuel efficiency options;
(5) Urban planning and behavior change through zoning, traffic design, and idle reduction rules; and
(6) Research and development on new technologies such as higher capacity batteries.

Federal policy dominates the transportation sector with mandatory manufacturing standards and voluntary incentive, education and assistance programs that increase fuel efficiency.

States were excluded from vehicle fuel standard determination until the landmark California case of 2007-09 that drove a shift in the national fuel efficiency standard.

Urban planning takes place at the local and regional levels. Local governments focus on pollution control and traffic management policies that alter driving patterns (land use planning, public transportation programs, regulations that restrict engine idling). There are some local incentives to reward consumers for using fuel-efficient vehicles.

Governments at all 3 levels lead by example by making efficient choices in the purchase of vehicles for publicly-owned fleets.

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The industrial sector uses 31% of U.S. energy across a wide variety of subsectors with very different energy needs. EE policies for the industrial sector must, therefore, allow flexibility and are limited to:
(1) Financial (loans and grants for industries to upgrade equipment) and non-financial (expedited permitting) incentives;
(2) Technical assistance to implement programs, such as energy audits that help industries see the economic benefits of invesing in EE; and
(3) Research and development.

The federal government offers all 3 policy types: (1) Tax incentives for manufacturers and home builders and (2) loans that require EE and emissions cuts that are flexible enough to apply to a wide range of industry’s subsectors. The federal government also funds general industry programs with plant-specific technical assistance to the most energy-intensive industries.

State governments generally focus on financial incentives (tax credits, loans, grants) to offset the costs for industries that buy into EE technologies. Some states also customize support (incentives and technical assistance) to individual industries.

Local government EE programs are typically designed to attract industries that will add jobs and revenues to the locality, often through non-financial incentives like expedited permitting for New Energy industries.

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The electric power sector uses 40% of U.S. energy, mostly to provide energy to the building and industrial sectors. EE policies for the power sector address two concerns: plant (production) efficiency and consumption (end-use) efficiency. Government policies are aimed at supporting utilities to make end-user energy consumption more efficient.

Utilities, which are mostly regulated by either state or local governments, are key to the the design and implementation of U.S. EE programs because they have direct contact with and knowledge of customers and their needs. Utilities can use their knowledge and customer base to develop pricing policies and incentive programs that manage demand on an hourly, daily and seasonal basis.

In the power sector, federal policies have offered direction and deferred to utility leadership. Federal guidance has come through (1) legislation imposing standards on states and (2) funding for state EE programs.

Federal support for EE technologies research and development (in wire conductivity, grid capacity and capability and power storage on the end user side and turbine efficiency on the production side) also drives utilities to better efficiencies by proving cost effectiveness.

State governments, with jurisdiction over all but municipally-owned utilities and rural electric cooperatives, use regulatory (instead of legislative) policies implemented through state public utility commissions. Commissioners are appointed by governors. State policies include incentives and technical assistance.

Local governments, which govern the municipally-owned utilities and rural electric cooperatives, offer financial incentives (rebates, loans) for customers to move to EE.

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4 key EE policy trends:
(1) California has repeatedly been an EE policy innovator and federal leaders should look to its policies for national program principles that have already proven effective.

(2) Metrics will be the key to selecting best policy practices.

(3) The only solution to the problem of a geographically and economically fragmented patchwork of narrowly designed tactics and policies that creates regulatory uncertainty and private-sector inaction is a strategically designed set of comprehensive policies. This is particularly crucial in stimulating the expansion of technologies that impact the full spectrum of the economic sectors.

(4) Effective policies will move beyond the constraints imposed by differences between governing jurisdictions, conflicting political expediencies, and limitations of technologies and sectoral economics toward a comprehensive assessment of the barriers to more EE and the policies needed to break them down.

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The key questions that need to be answered:
(1) What are the barriers to EE that current federal, state and local government policies have not yet addressed?

(2) What policies apply to federal, state and local government and what policies need to be addressed to each governmental level individually?

(3) What drivers apply to federal, state and local government policies?

(4) What metrics can be used to evaluate the intended and unintended impacts of the EE policies?

Stakeholder-led efforts, such as the National Action Plan for Energy Efficiency, may be the best way to answer these questions in a way that satisfies the wide variety of interests at the 3 levels of government and the 4 sectors of the economy.

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QUOTES
- From the report: “…a wide array of [National Action Plan for Energy Efficiency] stakeholders—including different levels of government—identified policy strategies that drew from their various strengths, interests, and capabilities, and in this way resulted in a strategy that provides useful coordination and internal consistency between policies at all three levels. This approach requires strong leadership from a central body, in this case the EPA, as well as a commitment from stakeholders to a sustained, collaborative process. Such methods have been successfully implemented in other countries, and…may be useful in crafting approaches to policy integration.”

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- From the report: “There is a consonance among policy goals at all three levels, with each jurisdiction focusing its operations on its own unique geographical scope. Understanding how the policies interact and can contribute to a comprehensive efficiency policy is critical to developing a plan to reduce energy consumption. This report provides a sector-by-sector review of historical and current policies, with a specific focus on how each jurisdiction adapts general policy tools (e.g., standards, financial incentives) to reflect its relative strengths and policy focus.”