Energy efficiency is the “first fuel” in America=s energy policy. Efficiency investment, as the cornerstone of a sound energy policy, must now be accelerated in order to:

The U.S. economy uses half as much energy to produce a dollar of output today as we used in the 1970s. In this context, efficiency is contributing more resource value to the economy than any single energy supply commodity, and has enabled our economy to weather the energy price storms of the last several years. For the near term, efficiency is our only realistic resource and policy choice for meeting these challenges. For the longer term, we will need to accelerate efficiency gains even further as traditional resources become more expensive and scarce.

 

But what is energy efficiency? More than a concept, efficiency accounts for a very large segment of the U.S. economy. ACEEE estimates that in 2006, total investment in energy supply systems, from pipelines to powerplants, totaled about $100 billion. But Americans also invest in energy demand technologies: energy-efficient products bearing the federal Energy Star label accounted for some $101 billion last year, in a range of home and business products. Since Energy Star products account for only about 1/3 of these markets in the aggregate, total revenues are likely in the range of $300 billion annually. And the Energy Star data does not include investments in high-efficiency commercial and industrial technologies, vehicles, combined heat and power systems, and others that would increase the size of the “efficiency economy” still further.

 

 

On March 14, ACEEE joined with Philips Lighting Company and other groups in a 10-year initiative to improve the efficiency of the common light bulb by fourfold or more, saving consumers almost $20 billion in electric bills in 2016 while cutting carbon emissions by up to 140 million tons. This is symbolic of the kind of technology innovation that can transform our energy economy more completely than anything we have seen to date.

 

Energy efficiency is the essential common element in any policy approach to the unprecedented energy challenges of the 21^st century. We must moderate demand growth to enable clean and secure energy sources to wean us from depreciating and dirty sources. This means doubling the rate of progress in energy productivity, through through smart energy policies that use a sound mix of regulation and incentives to overcome large and persistent barriers to energy efficiency investment. Effective policies including energy data collection and reporting, research, development, demonstration and deployment, vehicle fuel economy policies, energy efficiency resource standards for utilities, appliance and equipment efficiency standards, and tax incentives.

ACEEE is a nonprofit organization dedicated to increasing energy efficiency as a means of promoting both economic prosperity and environmental protection.  We were founded in 1980 and have contributed in key ways to energy legislation adopted during the past 25 years, including the Energy Policy Acts of 2005 and 1992 and the National Appliance Energy Conservation Act of 1987.  I have testified before the Senate several times and appreciate the opportunity to do so before the Subcommittee.  

 

 

Energy efficiency improvements have contributed a great deal to our nation=s economic growth and increased standard of living over the past 30 years. Energy efficiency improvements since 1973 accounted for approximately 50 quadrillion Btu=s in 2003, which is more than half of U.S. energy use and nearly as much energy as we now get annually from domestic coal, natural gas, and oil sources combined.^[1]  Thus, energy efficiency can rightfully be called our country’s largest energy source.  If the United States had not dramatically reduced its energy intensity over the past 30 years, consumers and businesses would have spent about $650 billion more on energy purchases in 2006.

 

Energy efficiency is measured not just in abstract terms like declining energy intensity, but also in concrete terms like product sales, job creation, and capital investment. ACEEE estimates that in 2006, total investment in energy supply systems, from pipelines to powerplants, totaled about $100 billion. But Americans also invest in energy-using technologies: energy-efficient products bearing the federal Energy Star label accounted for some $101 billion in sales last year, in a range of home and business products like home appliance, home electronics, heating and cooling systems, office equipment, lighting, and windows. These are large markets: our data show that, for example, that Americans buy some 11 million refrigerators, 64 million residential windows, 150 million pieces of office equipment, and about 1.5 billion light bulbs. We estimate that Energy Star products account for only about 1/3 of these markets in the aggregate, totaling some 330 million products, so one could project that total sales in these markets may be in the range of $300 billion annually. This suggests that, in rough terms, the U.S. economy spends perhaps three times as much per year on energy end-use technology as it does on energy supply technologies.

 

Moreover, the Energy Star data does not include investments in the 160,000 Energy Star new homes sold in 2005, or the high-efficiency commercial and industrial technologies, vehicles, combined heat and power systems, and others that would increase the size of the “efficiency economy” still further. While our analysis in this area continues, and we have not come to detailed conclusions on this topic, the data we have developed so far indicates that the demand side of the economy is very large in comparison with the supply side, and that efficiency investments in the aggregate account conservatively for over $100 billion.

 

These data help to erase a persistent misconception, which often occurs as an unstated assumption in many analyses, that energy efficiency is an economic “brake”, that it involved reducing economic output or slowing economic growth. This misconception tends to stem from confusing energy efficiency with energy conservation. Conservation means reducing our consumption of energy services, whereas efficiency means consuming the same level of energy services with reduced consumption of energy commodities. This distinction between energy services and energy commodities is important. It is energy services we want—cold beverages, hot showers, well-lit rooms, comfortable living spaces, information services—and we are typically indifferent as to how much of which kinds of energy commodities supply those services.

 

Energy conservation, cutting back on the level of energy service, can in theory have an economic “brake” effect, if there is no shift of technology or spending of energy savings on other goods. But conservation usually occurs during times of rising energy prices, so the total economic output of the energy sector may continue to rise, and consumers may spend energy savings on other goods. Efficiency, on the other hand, involves technology investment to replace less-efficient products and systems. These investments create an economic stimulus with ripple effects through the economy, and our macroeconomic analyses show that efficiency investments tend to produce greater net economic benefits, in the form of increased output, income, and employment, than do investments in supply-side technologies.

 

We estimate that energy efficiency has provided some 75% of the growth in energy services from the 1970s to the present. While efficiency is often invisible—today’s refrigerators look and perform the same or better than 30 years, ago, but use 1/3 the energy—it is nonetheless measurable. And even though it is distributed in millions of individual buildings, vehicles, and devices, it has been and continues to be an effective engine of economic growth for the United States.

Even though we spend large amounts on efficient technology today, and the United States is thus much more energy-efficient than it was 30 years ago, there is still enormous potential for additional cost-effective energy savings. Some newer energy efficiency technologies have barely begun to be adopted. Other efficiency measures could be developed and commercialized rapidly in coming years, with policy and program support.  For example, in a study from 2000, the Department of Energy=s national laboratories estimate that increasing energy efficiency throughout the economy could cut national energy use by 10 percent or more in 2010 and about 20 percent in 2020, with net economic benefits for consumers and businesses.^[2]  Studies for many regions of the country have found similar if not even greater opportunities for cost-effective energy savings.^[3]

 

ACEEE recently completed major studies of the energy efficiency and renewable energy resource potential in the states of Texas and Florida. These studies showed and efficiency and renewables can meet all of the growth in energy service needs, even in such fast-growing states, over the next 15 years or more. The figures below summarize these results. While public and private investment are needed to develop them, these resources provide better returns to the economy than conventional energy supply investments.

 

 

Share of Texas’ Future Electricity Needs That Can Be Met with Efficiency and Renewables Resources

 

It should be noted that the efficiency potential analyses discussed here are inherently quite conservative. They are based on technologies that are established in the market today, and on today’s energy prices and technology costs. They are thus very conservative in the sense that new technologies, higher energy prices, and lower technology costs may well justify much greater estimates of efficiency potential. In the 1970s, for example, electricity growth rates were in the range of 3.5% per year. In that era, there was little of the high-efficiency technology we have today: examples include refrigerators that use 1/3 the energy of similar 1970s models; air conditioners that are twice as efficient; light bulbs that save ¾ the energy used by incandescent bulbs; LCD computer monitors that use ¼ the energy of CRT monitors; and the list goes on. Because of such technology advances, the Energy Information’s 2007 Annual Energy Outlook projects that electricity demand will grow by only 1.5% annually through 2030, less than half of 1970s projections.

 

McKinsey Global Institute recently completed an analysis of global energy demand, and the potential for energy efficiency and related energy productivity gains to reduce current reference forecasts for energy demand growth. The study found that energy demand growth can be reduced by more than half by economically-viable technologies driven by public policies. It also found that in the U.S., energy consumption need not grow at all through 2030 if the cost-effective productivity improvements were realized in all sectors.^[4]

 

Regardless of the size of energy efficiency’s aggregate potential, or of the cost-effectiveness of such investments, a variety of market barriers keep these technologies from being implemented. These barriers fall in two main categories: (1) principal-agent or “split incentive” barriers, in which, for example, home builders must invest added capital in efficient homes, but receive none of the energy savings benefits; and (2) transaction costs, which stem from inability of average consumers or businesses  to make “economically optimum” decisions in time-and-information-limited real world conditions. A study ACEEE conducted for the International Energy Agency covering five countries found that half or more of the energy used in major home and business energy end-use markets are affected by the principal-agent barrier alone.^[5]

 

In addition, basic forces in the economy work against the tendency of higher energy prices to moderate energy demand. This principle of “price elasticity of demand”, while economically correct, is countered by “income elasticity of demand”, under which rising incomes cause consumers to be less affected by rising prices. A large segment of our population continues to buy low-mileage, high prices vehicles, with little concern for fuel costs. For less-affluent consumers, “cross-elasticities” come into play, which cause them to keep using energy as an essential service, but to cut back on other goods to balance their budgets. Economists have documented the slowing of retail sales in response to rising energy prices. Both the income elasticity and cross-elasticity effects suggest that energy prices alone won’t balance our energy markets, and we need stronger energy policies if we want to stabilize energy markets without damaging our economy.

 

 

Recent developments in our energy markets indicate that the U.S. needs to accelerate efforts to implement energy efficiency improvements:

 

Energy efficiency also draws broad popular support. For example, in a March 2005 Gallup Poll, 61% of respondents said the U.S. should emphasize Amore conservation@ versus only 28% who said we should emphasize production (an additional 6.5% volunteered “both”).^[19]  In an earlier May 2001 Gallup poll, when read a list of 11 actions to deal with the energy situation, the top four actions (supported by 85–91% of respondents) were “invest in new sources of energy,” ”mandate more energy-efficient appliances,” “mandate more energy-efficient new buildings,” and “mandate more energy-efficient cars.” Options for increasing energy supply and delivery generally received significantly less support.^[20] 

 

Technological innovation in energy efficiency, as is true of many facets of the U.S. economy, relies on a stream of innovations. ACEEE reviews emerging technologies in the buildings, industry, and transportation sectors, and periodically publishes reports on leading technologies. A summary of, and hyperlinks to,  ACEEE reports on these technologies in the buildings sector can be found at the following World Wide Web address: http://www.aceee.org/emertech/buildings.htm#reports.

 

Our most recent buildings-sector technology assessment examines 72 emerging technologies in detail. While this testimony is too short for a full discussion of all of these innovations, I would like to use one technology—the residential incandescent light bulb—as an emblematic example. In our 2004 emerging technologies report, we examined several lighting technologies, including compact fluorescent fixtures, halogen lighting, and light-emitting diode (LED) lighting. All of these show promise as alternatives to the incandescent light bulb that has been the most common form of residential electric lighting for more than a century. It still accounts for more than 90% of total residential lighting sales in the U.S.

 

On March 14, 2007, ACEEE and other organizations announced a new coalition effort, initiated by Philips Lighting Company, that will fundamentally change the U.S. home lighting market in 10 years. By setting new high-performance targets for typical lighting applications, we expect to reduce residential lighting consumption by as much as 90%. While such standards are technology-neutral, based on our emerging technologies analysis we expect that compact fluorescents, halogens, and LEDs will all play a role in this transformation.

 

The residential light bulb was the first universal electricity end-use application when the electricity industry first developed in the 19^th century. Its main role in those early years was to create a universal, electric lighting energy service technology. Until the advent of the electric light bulb, lighting energy services were met by kerosene, whale oil, and of course paraffin (which we use as candles). Electric lights were the first in a long line of electricity-powered end use technologies that enabled the development of our modern power grid, and that drove much of our economic growth in the 20^th century.

 

In the 21^st, century, however, we have a different imperative. Our electricity grid is built; to sustain economic growth while protecting our environment, we must cut waste from the energy-services side of the grid while cutting pollution from the generation side. Last week’s lighting coalition announcement is one significant shift among many that must be achieved on the energy services side. Our technology studies and potential analyses show that such shifts toward energy-efficient technology can occur in many other end-uses.

 

Philips’ new lighting initiative is representative of the kinds of innovation we are seeing in the buildings sector. In the industrial sector, companies like Dow Chemical are achieving dramatic gains in energy efficiency and carbon emission reductions. From 1995 to 2005, Dow reduced the energy consumed per pound of product by 20%. In 2006, the company announced a new commitment to reduce its energy used per pound of product by another 25% by 2015. This requires continuous innovation, in end-use technology, in the application of combined heat and power systems, in process improvement, and in operation and maintenance practices.

 

 

The Energy Policy Act of 2005 (EPAct 2005) made some useful progress on energy efficiency.  Particularly notable were sections that established new consensus federal efficiency standards on 16 products and that created energy efficiency tax incentives.  ACEEE estimates that the energy efficiency sections of EPAct 2005 will reduce U.S. energy use by about 1.8 quadrillion Btu (“quads”) in 2020, reducing projected U.S. energy use in 2020 by 1.5%.  Of these savings, more than 75% will come from equipment efficiency standards and energy-efficiency tax incentives.^[21]

 

EPAct 2005, however, did not address several key energy efficiency issues. And since 2005, America’s energy challenges have increased. We therefore recommend that Congress take further action to stimulate energy efficiency innovation.

 

One of the core functions and responsibilities of the federal government is to collect information on market activity, so that businesses, researchers, and policymakers have the fundamental information they need to understand markets and plan for future initiatives.  The Commerce Department through its Census and other activities, and the Department of Energy through its Energy Information Administration surveys, are two of the key sources of information needed to keep up with developments in energy markets. We have seen disturbing trends in both agencies, with key surveys being cut back in comprehensive and in frequency, and in some cases dropped altogether.

 

We urge the Committee to investigate this issue and seek to restore this key information infrastructure. Cutting back on energy market surveys is like cutting back on the U.S. Geological Survey, on whose information the energy supply industries depend for energy resource information; we need to continue and expand, not curtail, government efforts in this area.

 

For specific examples, we are concerned about the loss of the M-series surveys in the Census Bureau. These surveys collect essential information on product shipments, without which it is not possible to track the trends that indicate which technologies are penetrating the market. In addition, last year’s discontinuation of the Vehicle Inventory and Use Survey was a tremendous disservice to the cause of heavy-duty truck efficiency, and indeed to the understanding of and planning for the trucking industry generally. The VIUS, conducted every five years, is the only source of national data on the number, size, fuel economy and driving patterns of the U.S. truck stock. It should be reinstated as soon as possible, before the Commerce Department’s institutional capability disappears. The next VIUS was to have occurred in 2007.

 

Many of the energy efficiency technologies we see emerging today were created with federal RDD&D support—these include Energy Star windows, compact fluorescent and LED light bulbs, and high-efficiency refrigerator technology. EPAct authorized significant increases in efficiency RDD&D; however, budget requests for efficiency RDD&D have declined by about one-third since FY 2002. These cuts are beginning to cripple our research infrastructure, by laying off senior personnel with irreplaceable technology expertise and research experience, and in some cases discontinuing entire research programs. If the U.S. wants to continue its record of innovation in the energy area, and wants to be an effective competitor in global markets.

 

We were encouraged to see the Senate Budget Committee allocate $1.6 billion for energy efficiency and renewable energy programs at the Department of Energy. This represents more than a $300 million, 25% increase over the administration’s FY 2008 budget request. In our House Energy and Water Development Appropriations Subcommittee testimony, we recommended increases in 16 priority efficiency programs for a total increase of $217 million above the request. We hope the Senate appropriations process will follow these recommendations, and thus begin to rebuild the RDD&D infrastructure the U.S. needs to get ahead of the curve on the next generation of energy efficiency innovations.

 

Most notably missing from EPAct were significant provisions to reduce oil use or to accelerate energy efficiency investment in the electricity and natural gas industries. We recommend that Congress make these high priorities in its upcoming deliberations on energy policy. Fuel economy in the vehicle fleet must be improved, either through federal fuel economy standards, tax incentives, or RD&D policies. Our analysis projects that more than 5 million barrels of oil per day, some 25% of current U.S. consumption, could be saved cost-effectively by 2025.

 

ACEEE supports the “Ten-in-Ten” fuel economy bill sponsored by several Commerce Committee members that would raise the average fuel economy of light-duty vehicles to 35 mpg by 2018. This target is achievable and necessary to allow the transportation sector to meet its responsibility to address climate and energy security goals.

 

There are companion policies that should be explored as well. On the consumer side, a feebate policy would ensure, in the face of volatile fuel prices, consistent consumer interest in the fuel economy of the vehicles that they buy and help to align consumer demands with requirements of manufacturers as fuel economy increases are phased in over the next decade.

 

 

We also recommend that Congress enact Energy Efficiency Resource Standards (EERS) for electric and gas utilities. EERS is a simple policy approach that sets overall performance targets for utility efficiency efforts and provides flexibility in compliance. Several states have implemented EERS, beginning with Texas in its 1999 electricity restructuring legislation.^[22]  It is somewhat analogous to the Renewable Portfolio Standards (RPS) the Senate has passed twice in this decade. In fact, EERS and RPS are quite complementary. Our preliminary analysis shows that the most recent Senate RPS bill, combined with the EERS in a current discussion draft, could begin to reduce carbon emissions in the U.S. electric power sector by 2020.

 

EERS laws and regulations are now in operation in several states and countries. Texas’s law requires electric utilities to offset 10% of their demand growth through end-use energy efficiency. Utilities in Texas have already exceeded their targets, and there is legislation to raise them. Hawaii and Nevada recently expanded their renewable portfolio standards to include energy efficiency. Connecticut and California have both established energy savings targets for utility energy efficiency programs (Connecticut by law and California by regulation) while Vermont has specific savings goals for the nonprofit organization that runs statewide programs. Pennsylvania’s new Advanced Energy Portfolio Standard includes end-use efficiency among other clean energy resources. Colorado’s largest utility has energy savings goals as part of a settlement agreement approved by the Public Service Commission. And Illinois and New Jersey are planning to begin programs soon. EERS-like programs have been working well in Italy, the United Kingdom, France,  and the Flemish region of Belgium.

 

 

Appliance and equipment efficiency standards are another proven policy for accelerating innovation in energy efficiency. Standards already in place will save Americans over $200 billion in net economic benefits through 2030. There are several consensus agreements for new standards that could be included in legislation in this session of Congress. We will work with the energy committees on these issues.

 

ACEEE, affected industries, and other stakeholders have a long history of negotiating consensus agreements on new efficiency standards.  Many of these agreements were incorporated into the Energy Policy Acts of 1992 and 2005.  ACEEE is now talking with stakeholders about standards on additional products and has agreements on several new standards. We are working with energy committee staff to include these new consensus standards in legislation this year. 

Products which may lend themselves to consensus standards include the following:

 

We also recommend that the EPAct tax incentives for energy efficiency technologies be extended beyond their current expiration dates, which were truncated by the EPAct conferees at the last minute. The EXTEND Act (S.822) was recently introduced in the Senate to achieve this end, while also refining some specific provisions. We support the EXTEND Act as part of a consensus among a wide range of stakeholders

 

While they are not included in the EXTEND Act, Hybrid tax credits in EPAct 2005 should be extended and expanded to ensure the continued growth of the hybrid market. Incentives for heavy-duty hybrids should be revisited and extended as well. Interest in heavy-duty hybrids is high among users, and as is the potential for fuel savings.

 

Energy efficiency is the “first fuel” for America=s energy policy.   Energy efficiency has saved consumers and businesses trillions of dollars in the past two decades, but these efforts should be accelerated in order to:

This concludes my testimony. Thank you for the opportunity to present these views.

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