03 April 2009
Stimulating Efficiency for the Long Term
By Stacy Angel and Larry Mansueti
Oil prices reached a record peak in mid-2008, then spiraled downward in tandem with world economies. A new president took office in the United States, and the economic crisis became Item One on his agenda. President Obama has vowed to place the conjoined issues of energy and economics at the forefront of his recovery plan. But years before this crisis erupted, the U.S. energy industry and the officials who regulate it joined forces to develop and implement new ways to bring greater efficiency to the nation’s entire energy infrastructure.
Stacy Angel and Larry Mansueti oversee federal assistance to the National Action Plan for Energy Efficiency. Angel is in the Environmental Protection Agency’s Climate Protection Partnerships Division, where she supports voluntary efforts to reduce carbon emissions through clean energy, including energy efficiency. Mansueti is in the Department of Energy’s Office of Electricity, where he supports senior management on electricity policy matters and assists states working to enhance efficiency in electricity regulatory policies.
The American Recovery and Reinvestment Act of 2009 became law on February 17, stimulating an unprecedented level of energy efficiency investment in the United States.
Investing in more efficient technologies and practices in our homes, businesses, schools, governments, and industries — which account for 70 percent of natural gas and electricity consumption in the United States — is one of the most constructive, cost-effective ways to create new jobs. At the same time, such investment will address the challenges of high energy prices, energy security and independence, environmental concerns, and global climate change in the near-term. Mining this efficiency could help the United States meet on the order of 50 percent or more of the expected growth in consumption of electricity and natural gas in the coming decades, saving billions of dollars in energy bills and avoiding significant emissions of greenhouse gases and other air pollutants.
Recognizing the large opportunity for energy efficiency, more than 60 leading organizations representing diverse stakeholders from across the country joined together to develop the National Action Plan for Energy Efficiency in 2006. Many of these stakeholders are the very groups that can deliver energy efficiency -- electric and gas utilities, their corresponding state regulators, and others.
The Action Plan identifies the key barriers contributing to underinvestment in energy efficiency, outlines five key policy recommendations for achieving its goal of all cost-effective energy efficiency, and offers a policy framework -- Vision for 2025 -- to achieve and measure progress towards the goal. Barriers to greater investment in energy efficiency are widespread, among customer types and within the energy utility companies. For example, customers who do not pay their energy bills directly, such as in some rental housing, do not have an incentive to spend more on energy-efficient lighting or televisions because their landlord will reap the monthly utility savings. We call this the “split incentive” barrier to energy efficiency. In addition, utilities may be able to reduce their costs to serve all customer energy demands by supporting energy efficiency, but “best practices” program approaches for delivering these savings are not always well-documented and often not captured in utility energy planning or funding efforts.
The Action Plan has received broad support by states, utilities, and customers across the United States. To date, more than 120 organizations have endorsed the Action Plan recommendations and made public commitments that will help advance Vision for 2025. The U.S. Environmental Protection Agency and the U.S. Department of Energy only facilitate the work of this public-private initiative, and thus the positions and statements are those of the Action Plan members themselves. It’s a powerful message endorsed by a wide cross-section of decision makers from across the United States.
Vision for 2025 is the flagship document of the Action Plan. Given the U.S. utility regulatory structure, many of the policies to remove barriers to energy efficiency must be advanced at the state level. Therefore, the Action Plan’s Vision for 2025 offers a policy framework for advancing all cost-effective energy efficiency, while recognizing the diversity of regional, state, and local circumstances and regulatory structures. Thus, policy details and implementation decisions will be determined through appropriate state-level processes. It is a framework that can be updated and improved over time.
The vision leverages more than two decades of energy efficiency experience to craft its 10 implementation goals. Progress is measured across a comprehensive set of policy steps under these goals. As of the end of 2007, Vision for 2025 found much progress had been made, but more work is needed. About half of the states have established energy efficiency programs to reach all customers and adopted building codes requiring a higher degree of energy efficiency in construction of new homes and buildings. Further, about one-third of the states have established energy savings targets and addressed disincentives for utility companies to support energy efficiency efforts. For example, some states have established policies so that utility companies do not have their ability to earn profits linked to selling additional energy.
Less progress has been made by states in establishing consistent, stable funding for energy efficiency. Power plants, transmission lines, and pipeline construction by utilities receive steady funding through state regulatory processes that permit the recovery of approved capital improvement costs from customer rates. States could adopt policies to also fund efficiency measures through the utility rate structure to meet the Action Plan goals.
Given the success and challenges to date, states, utilities, and other organizations are currently spending about $2 billion per year on energy efficiency programs. This level of investment has avoided energy production equivalent to more than 30 power plants generating 500 megawatts of electricity and the greenhouse gas emissions equivalent to that of 9 million vehicles per year, while saving energy customers nearly $6 billion annually.
The economic stimulus funding approved by the Congress and authorized by President Obama’s signature provides a much-needed increase in resources, several times above current levels, to realize even greater benefits from energy efficiency. Even with this funding, the work of the Action Plan is not yet done. The potential for cost-effective energy savings in the nation’s buildings and homes exceeds that which will be met through stimulus activities. Further, the trained and experienced energy efficiency workforce will grow under the stimulus and be ready to service the additional building stock. Policymakers can be taking action now so that the same barriers to energy efficiency originally recognized by the Action Plan continue to be removed over the long term. This will take a reexamination of how the incentives for energy efficiency investments are aligned across customers and energy suppliers, including how utilities can achieve lower costs by considering efficiency as they would electricity generation and natural gas supply in energy planning efforts. The Action Plan’s Vision framework is offered to help states explore how they can continue to stimulate energy efficiency and maintain jobs over the long term.
As the economic stimulus is implemented, the Action Plan leadership will continue to make its wealth of reports, tools, and technical assistance available for states, local authorities, and energy efficiency programs. Existing best practices and expertise captured in these resources can be leveraged to help put stimulus funding to work quickly and effectively, while also supporting the development of a policy environment to support energy efficiency well after the economic stimulus funding has expired.
See the Action Plan Web site at www.epa.gov/eeactionplan.
