Efficiency left out of cap and trade

By Elisa Wood

October 15, 2009

Waxman/Markey’s climate change bill is about 1,400 pages. Its length and complexity, alone, provides fuel for its opponents. Would it stand a better chance of enactment if it encompassed less?

For example, would it have been wiser if Congress pursued cap and trade one year and a renewable energy standard another? I’ve asked this question a lot during interviews the past few weeks, and received a range of responses. But what I found most enlightening, at least from an energy efficiency perspective, was a webinar offered by Bill Prindle, vice president at ICF International. http://www.icfi.com/markets/energy/webinar/webinar-archive.asp.

Here’s what I took away: Energy efficiency helps the carbon reduction cause. But the carbon reduction cause doesn’t do much for efficiency.

Most versions of cap and trade programs now on the table do not recognize the value of demand-side resources in reducing emissions. Credit goes to emissions reductions at the power plant level, not at the retail customer level. So while my new, efficient heat pump will cut my energy use and therefore carbon emissions, this action is not acknowledged anywhere in a cap and trade system. Cap and trade offers no financial reward to the consumer or business that invests in energy efficiency measures.

In a perfect world, lawmakers would rethink cap and trade to encompass demand-side efficiency. But it appears that political and technical obstructions make that difficult. This is bad news – and downright odd – given that energy efficiency is widely acknowledged to be the cheapest way to cut carbon dioxide emissions.

So what’s to be done?

Prindle describes the need to enact polices that complement cap and trade. This is where a national renewable energy standard comes into play. Within Waxman/Markey, the standard requires not only a certain percentage of renewables in a state’s energy mix, but also certain amount of efficiency – a so-called energy efficiency portfolio standard. With a standard in place, efficiency increases, energy use declines, and fewer greenhouse gases are emitted – without any cap and trade influence. As is often the case, the states have already jumped out in front of federal policy: 19 now have such energy efficiency portfolio standards.

A bill with just a cap and trade scheme, one without a portfolio standard, eliminates a powerful way to reduce carbon emissions. So perhaps the 1,400 pages of Waxman/Market are justified. The verdict, of course, is out on whether or not Congress will pass an energy bill this year. Much has been made of the complexity and length of health care reform legislation. Expect the same when, and if, the energy bill comes under public scrutiny. We’ll see what pages make it beyond the cutting room floor.

Visit Elisa Wood at http://www.realenergywriters.com/ and pick up her free Energy Efficiency Markets podcast and newsletter.

Now where did I put that energy efficiency?

By Elisa Wood

September 17, 2009

Sort of like my car keys, “the forgotten memory doesn’t disappear – we just can’t remember where we put it.” So says Jonah Lehrer, one of my favorite bloggers and contributing editor at Wired.

What’s memory got to do with electric power? It appears we keep misplacing energy efficiency. When critics – even sometimes supporters – talk about reducing greenhouse gases, they forget to calculate whether or not energy efficiency can lower the price tag.

Could it be, then, that carbon dioxide reductions will cost society less than we forecast?

The American Council for an Energy Efficient Economy contends that is the case. “Much of the debate on federal cap and trade legislation is focusing on the cost of compliance. Prior studies either do not account for energy efficiency provisions in the legislation, or due to a shortage of time and other resources, address only a few of the energy efficiency provisions,” says ACEEE in a new report, "Energy Efficiency in the American Clean Energy and Security Act of 2009: Impacts of Current Provisions and Opportunities to Enhance the Legislation."

The findings run contrary to conventional thinking about climate change costs. The climate bill passed by the US House in June won’t cost us money; it will save us money, according to ACEEE.

The legislation would require that 20% of our energy supply come from green energy — 8% of the 20% can come specifically from energy efficiency. It also ramps up buildings codes and appliance standards, and takes other action to decrease energy use.

These efficiency measures would save the average household $220 by 2020 and $486 by 2030 – more than cap and trade costs.

Even more savings are to be had – as much as $832 per household by 2030 — if the Senate makes some changes in the bill, according to ACEEE. Specifically, the organization says Congress should:

• Mandate that 10% of our energy come from efficiency
• Direct one-third of electric utility allowances to energy efficiency
• Extend to 2030 the 9.5% allowance revenue allotted to state energy and environmental development funds.

Exactly how much energy would we save? If the Senate makes these changes to the bill, we’ll save as much energy by 2030 as US households now consume in a year, says ACEEE. The energy savings are equivalent to what 512 power plants produce at their peak production. A big number, a kind of elephant in the room, one would think. But we’ll see if it gets lost as Congress works on climate change in the coming months.

Visit Elisa Wood at http://www.realenergywriters.com/ and pick up her free Energy Efficiency Markets podcast and newsletter

Carbon cap and boom?

By Elisa Wood

August 6, 2009

If we try to reduce greenhouse gases, the economy will take a hit, according to conventional wisdom. The Energy Information Administration bolstered the notion this week by reporting that energy prices would rise for the average US family by $142 in 2020 and $583 in 2030 under the House cap and trade bill passed in late June.

Steven Chu, US energy secretary, tried to soften the blow by saying that the carbon invoice amounted to less than a postage stamp per day. But cash-strapped US households are counting their postage stamps these days and finding they have none to spare.

So if cap and trade truly increases costs, it may be a tough sell to the American public when taken up by the Senate in September. But must we take an economic hit to revamp our energy supply?

The American Council for an Energy Efficient Economy offers an interesting twist on the conventional thinking about the cost of carbon reduction. If we do it right, we could actually better the economy, the organization says in its report, “The Positive Economics of Climate Change Policies: What the Historical Evidence Can Tell US,’ by John “Skip” Laitner, an ACEEE senior economist.

Laitner provides some interesting historic detail to underscore the argument that energy efficiency can reduce greenhouse gases without breaking the bank. Efficiency is not only relatively cheap, but it also creates a more productive economy. Consider this: The US has expanded its output threefold since 1970 and doubled its per capita income, yet the nation only increased its demand for power by 50% because of energy efficiency.

To give perspective on what this means, Laitner converted our energy use into equivalent gallons of gasoline. Today we use the energy equivalent of 2,600 gallon of gasoline per resident; had we not imposed greater efficiency, we would be using the equivalent of 5,500 gallons per person.

So, we have reduced our “energy intensity,” the amount of energy it takes to support a dollar of economic activity. “This decoupling of economic growth and energy consumption is a function of increased energy productivity: in effect, the ability to generate greater economic output, but to do so with less energy,” the report says.

Analysts tend to over-estimate the cost of carbon reductions by underestimating the economic benefits of energy efficiency. For example, energy efficiency not only reduces energy bills, but also often leads to cuts in other costs to homes, buildings and factories. Maintenance, water use, chemical use all tend to decline.

“Changing our investment mix away from traditional, energy intensive patterns toward one that emphasizes more productive technology and behavior, greater energy efficiency, and more labor intensive activities can yield higher rates of economic growth and lower economic and environmental costs,” says the report. “In many ways this is much like rebalancing of a retirement portfolio to take advantage of changing market conditions and new growth opportunities.”

We managed to accomplish a high level of efficiency over the last 40 years with no particular plan. In fact, we proceeded in a “haphazard” and sometimes “counterproductive” way, says the report. What kind of energy productivity could we achieve if we actually tried? Might our energy secretary 40 years from now be talking not about what the new energy economy cost, but what it saved American households?

The report is available at: http://www.aceee.org/.

Visit Elisa Wood at www.realenergywriters.com and pick up her free Energy Efficiency Markets podcast and newsletter

Efficiency’s Role in Carbon Cap-and-Trade

By Elisa Wood

August 28, 2008

We hear a lot about how efficiency will play an increasingly important role as the United States undertakes efforts to reduce carbon dioxide emissions. But how does that play out in a practical sense under cap-and-trade programs?

The Offset Quality Initiative provides insight in a new white paper on greenhouse gas offsets:

http://www.pewclimate.org/docUploads/OQI-Ensuring-Offset-Quality-white-paper.pdf

A cap-and-trade program, like the Regional Greenhouse Gas Initiative (RGGI), caps emissions at a certain level in a geographic location, and then lets players use various trading mechanisms to operate within the cap. See Lisa Cohn’s blog in August 21 issue of Energy Efficiency Markets: http://energyefficiencymarkets.wordpress.com/2008/08/21/eastern-states-ready-for-big-ee-boost/

One of those mechanisms is an offset, which acts as a counterbalance to reduce overall greenhouse gases. More specifically, an offset represents emissions reduced at one site to make up for emissions produced elsewhere.

Offsets can be bought and sold in the form of credits. A commercial building owner might install efficiency improvements that reduce the amount of carbon dioxide the building produces. The owner then translates the emissions reductions into offsets under standards set by the cap-and-trade program. A power plant might buy the offsets to ‘reduce’ its emissions. The plant does not actually cut back on what it emits, but instead piggybacks on the building’s reductions. Overall emissions fall, so the cap-and-trade program achieves its goal.

RGGI, the nation’s first cap-and-trade program set to take effect next year in ten states, allows certain efficiency measures to qualify as offsets.

The program accepts offsets from efficiency measures that reduce or avoid carbon dioxide emissions created by natural gas, oil or propane in commercial or residential buildings. The building owner might improve equipment and systems for heat and hot water, install energy management systems, improve the building envelope or engage in certain other activities. (See RGGI’s model rule, page 132-145, http://www.rggi.org/modelrule.htm.)

Of course, offsets are just one way efficiency markets benefit from today’s focus on reducing carbon dioxide emissions. Even where no cap-and-trade programs exist, policymakers see energy efficiency as a key way to address climate change. The fewer electrons we use, the less power plants run; the less they run, the lower our emissions are. Thus, many cities and states are increasingly focused on larger policies and incentives that encourage businesses and homeowners to undertake efficiency measures.

Programs like RGGI help spur such thinking. Expect growing talk nationally about energy efficiency and its importance in the coming weeks as RGGI makes the news with its first market auction September 25.

Visit energy writer Elisa Wood at www.realenergywriters.com and subscribe to her free EE Markets newsletter and podcast.

Eastern States Ready for Big EE Boost

By Lisa Cohn

August 21, 2008

Several eastern states will see a large injection of cash for energy efficiency after the nation’s first mandatory auction of carbon dioxide allowances September 25.

The auction marks the United States entry into the world of capping and trading carbon dioxide emissions. Ten states are participating in the program, known as the Regional Greenhouse Gas Initiative (RGGI), or more commonly called “Reggie.”

To comply with RGGI, power generators must purchase carbon allowances, or permits. The September auction marks the first open sale of the allowances.

Why is this good for energy efficiency? Because the states will earn significant revenue from the sale of allowances, and many plan to put the money into efficiency programs.

By some estimates the first auction could earn the states as much as $63 million. That is with only six states participating: Connecticut, Maine, Maryland, Massachusetts, Rhode Island and Vermont. The other four states, Delaware, New Hampshire, New Jersey and New York did not have time to finalize their auction rules. However, those states have an opportunity to participate in a second auction in December.

How does it all work? Together, the states must cap carbon dioxide emissions at 188 million tons/year from 2009 to 2014. The cap drops by 2.5% for each of the next four years.

Power plants must secure one allowance for each ton of carbon dioxide they emit. The September 25 auction will offer 12,565,387 allowances.

State policymakers spent a lot of time hashing over RGGI details, and they came up with a program that makes a lot of sense. By spending auction revenue on efficiency, the states reduce power use, which further cuts back on carbon dioxide emissions.

A good source for more information on RGGI and state policy is Environment Northeast http://www.env-ne.org/. Auction details are available at http://www.rggi.org/

Visit energy writer Lisa Cohn at www.realenergywriters.com and subscribe to her free EE Markets newsletter and podcast.