Energy Efficiency Policies 

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Energy efficiency policies are government-initiated incentives that encourage the development and adoption of energy efficient technologies and practices. These can be put in place at the national, state, or local level. Many of these policies are more effective at the state level, where smaller government allows for more specialized policies according to state need. Policy for energy efficiency can be categorized using eight different fields: (1) utility-sector and public benefits programs and policies; (2) transportation policies; (3) building energy codes; (4) combined heat and power; (5) appliance efficiency standards; (6) lead by example in government facilities and fleets; (7) research, development, and deployment; and (8) financial and information incentives.

Utility-sector and public benefits programs and policies

These are policies that encourage utilities to promote end-use efficiency or help the public use energy more efficiently, and are among the most effective ways to achieve true energy efficiency. Energy Efficiency Resource Standards (EERS) are an example of such a policy. EERSs create quantifiable, long-term energy savings targets for utilities, often based off a percentage of a utility’s load or projected growth. For example, Minnesota’s EERS requires a 1.5% annual energy sales from electricity and natural gas utilities by 2010. In 2010, Alaska adopted a goal of reducing energy consumption 15% per capita by 2020. Energy efficiency programs were developed to help the state meet this goal.

The creation of financial incentives and the removal of disincentives towards energy efficiency is another way governments can promote end-use efficiency. Traditional regulation favors increased electricity sales and the expansion of centralized, large-scale supply systems by linking revenue to capital investment and the amount of electricity produced. Thus, the more electricity produced, the greater a utility’s revenue stream. “Decoupling” policies disassociate revenue from electricity sales, thus lowering the utility’s stake in the amount of electricity sold. Alaska nonprofit electric cooperatives may adjust rates using “simplified rate filing” procedures, allowing them to disconnect sales and revenue. Governments can also adopt financial incentives in conjunction with energy efficiency goals, which reward companies that exceed efficiency goals, are neutral towards those that achieve goals, and fine utilities who lag behind those goals.

Transportation policies

Transportation is one sector in which new policies could drastically reduce fuel consumption in the United States. Although transportation accounted for 28% of total energy use in 2011, only 11% of investment in energy efficiency was in the transportation sector. Because nearly 70% of transportation energy is used in passenger vehicles, effective transportation efficiency policies focus on reducing the number of cars on the road and decreasing the amount of fuel needed for each car. One way to do this is through Corporate Average Fuel Economy (CAFE) standards, which set a national minimum fuel efficiency average, in miles per gallon, for all cars in the United States. In May 2009, CAFE standards were increased to require the U.S. fleet to achieve an average of 35.5 mpg by 2016, an amount that will save an estimated 360,000 barrels of oil per day in 2020.

Other transportation policies include tax incentives for businesses and individuals who encourage carpooling, biking, or using public transportation to commute. In many states, public transportation costs can be written off on a person or company’s taxes. Additional tax credits are available in many states for people who purchase plug-in hybrid cars. These tax incentives help reduce the number of cars on the road and increase the fuel efficiency of vehicles that remain in use. However, tax incentives to use public transportation are less effective without proper investment in public transportation itself.

The American Recovery and Reinvestment Act of 2009 included roughly $18 billion dedicated to improving public transportation and the development of a high-speed rail system. States and municipalities are also working to increase public transportation options and encourage the development and improvement of communities to reduce dependence on vehicles. In 2008, Sitka became the first town in Alaska to receive the designation “Bicycle Friendly Community” from the League of American Bicyclists with Anchorage and Juneau receiving the honor shortly after.

Energy in buildings

Buildings consume about 70% of all electricity generated and account for roughly 40% of total energy use in the United States. The most economical approach to saving energy in the building sector is by creating energy efficient building codes. The International Energy Efficiency Code (IEEC) is a standard by which many states have created standard building codes for energy efficiency. At the federal level, the Building Codes Program provides research, funding, and assistance for the development of state and municipal building codes, though no federally mandated energy efficiency building code exists. The Department of Energy estimates that for every $1 spent on the Building Codes Program, $50-$60 is saved over the lifetime of the investment.

At the state level, the structure of building codes and energy efficiency standards is confusing, with no comprehensive, integrated package of statewide commercial and residential building code, including energy efficiency standards. In 2012 Alaska Energy Authority commissioned a study to provide energy efficiency policy recommendations for the State of Alaska. The report recommended establishing a comprehensive statewide building code that includes energy efficiency standards for all building retrofits and even new construction.

Options also exist for retrofitting buildings, including hiring “performance contractors” or energy service companies (ESCOs) to install new insulation, windows, heating and cooling systems, and control systems. Under the typical arrangement, the company finances the improvements and guarantees a certain amount of energy savings. The building owner pays the contractor back over time with those energy savings. Other Alaska programs exist for retrofitting public and private commercial buildings as well as residential buildings. For more information, see State and Federal Programs here.

Combined heat and power

Combined heat and power (CHP) systems produce electricity and heat at the same time, often on a smaller scale than traditional electrical generation facilities. By capturing and using the “waste” heat produced by electrical generation, CHP systems save the fuel that would have been used to produce that heat. By the end of 2011, CHP systems produce about 7% of U.S. electrical power and save consumers an estimated $5 billion per year in energy costs. Federal tax incentives are the primary driver of CHP systems. The Energy Improvement and Extension Act of 2008 included a 10% investment tax credit for CHP systems through 2016. At the state level, tax incentives and interconnection standards that establish parameters and procedures for bringing CHP systems onto the grid significantly increase the development of CHP facilities. States can also include CHP systems as part of a Renewable Portfolio Standard or Energy Efficiency Resource Standard.

Appliance efficiency standards

Appliance efficiency standards establish minimum standards based on the class of appliance. National appliance standards were first created in 1988 based on standards that had already been established in California. The Department of Energy (DOE) was charged with determining standards for over 50 classes of appliances. Since 2009, 16 new or updated standards have been issued, which will help increase annual savings by more than 50 percent over the next decade. Current law allows states to set their own efficiency standards for appliances that the DOE has not yet clarified. However, once the DOE sets efficiency standards, all states must comply with the standards and states wishing to have more stringent regulations must apply for an exception waiver from the DOE.

The Environmental Protection Agency has established its own voluntary appliance efficiency certification program. The government-backed Energy Star program sets certain standards for appliances and electronics and issues an Energy Star rating to products that meet those standards. Although compliance with Energy Star standards are voluntary, the establishment of nationally recognized standards for energy efficiency helps promote consumers’ interest and confidence in energy efficient products. In 2012, Sitkans adopted a program that provided $100,000 in rebates towards Energy Star refrigerators, freezers, washing machines, as well as heat pumps and heat pump hot water heaters. These appliance upgrades are saving Sitkans an estimated 350,000 kWh of energy annually.

Lead by example in government facilities and fleets

Governments that choose to incorporate energy efficiency standards into their own buildings and fleets promote energy efficiency through their example. Money saved from energy efficiency measures can be used for other public services, as well as incorporating energy efficiency into municipal, state, or governmental facilities, which increase public awareness of the financial advantages of energy efficiency.

The American Recovery and Reinvestment Act of 2009 allocated funding towards improving the efficiency of both federal and state facilities and fleets. This included $8.1 billion to the Department of Defense and the General Services Administration to upgrade existing facilities and invest in energy efficiency measures, $400 million to establish an Office of Federal High Performance Green Buildings, and $300 million to replace the federal fleet with more fuel-efficient vehicles. It also included $3.2 billion in grants to be given to state and local governments to promote energy efficiency and energy conservation and an additional $300 million to states to assist with the costs of updating their fleets to more fuel-efficient vehicles.

In 2013, President Obama set a goal to counteract climate change by the end of the next decade through “combined efficiency standards for appliances and federal buildings [that] will reduce pollution by at least three billion tons” an amount “equal to what our entire nation energy sectors emits in nearly half a year.”

Research, development, and deployment

The creation of new energy efficient technologies and the successful implementation of those technologies in the market are essential to increasing energy efficiency. The American Recovery and Reinvestment Act established a $2.5 billion fund for applied research and development of energy efficiency and renewable energy technologies. It also includes a $2 billion dollar allotment for the research of new battery technologies, which will allow utilities to store excess electricity for times of peak load. On a state level, many governments have already created R&D departments to develop new technologies and help to overcome market failures that may impede the implementation of new technologies.

Financial and information incentives

Information incentives such as home disclosure laws or appliance standards give consumers the ability to make a more informed decision when making a purchase. Financial incentives come in a variety of forms, including rebates for energy efficient technologies or improvements; income tax credits, exemptions, or deductions; and guaranteed loans for retrofitting existing structures to be energy efficient. Financial incentives work by lowering the net cost to the consumer and making energy efficient products and services comparable to standard models in price. While in place, financial incentives increase consumer awareness of energy efficient products and encourage producers to enter into efficiency markets. Eventually, competition and economies of scale drive down the prices of energy efficient models to be competitive with standard models and financial incentives can be removed.

Recently, a lot of attention has been given to financial incentives at the federal level. The Emergency Economic Stabilization Act of 2008 included an extension of energy efficiency policies first enacted in 2005. The majority of those policies involved tax credits for energy efficient upgrades on existing buildings or the construction of new energy efficient structures. The American Recovery and Reinvestment Act of 2009 increased some of those tax credits and removed tax credit limits on certain structures. It also expanded tax incentives for transit benefits and investment tax credits.

Sources:
American Council for an Energy Efficient Economy
Alliance to Save Energy
Thomas.gov
Energy Star
Energy Information Administration
United States Clean Heat and Power Association
Environmental Protection Agency

Resources:
Summary of Energy Efficiency provisions in the Emergency Economic Stabilization Act of 2008
Summary of Energy Efficiency provisions in the American Recovery and Reinvestment Act of 2009
Summary of Energy Efficiency and Renewable Energy provisions in the American Clean Energy and Security Act 2009 draft
Save American Energy Act text on Thomas.gov How does Alaska rate? The 2008 State Energy Efficiency Score Card Executive Summary
U.S. Energy Information Administration 2012 Annual Energy Review
Appliance Standards Awareness Project

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Renewable Energy Alaska Project is a coalition of energy stakeholders working to facilitate the development of renewable energy in Alaska through collaboration, education, training, and advocacy.