Energy Efficiency Policies
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 2009, Representative Edward Markey (D-MA) introduced H.R. 889, the “Save American Energy Act” in the House of Representatives. The Save American Energy Act proposes a federal EERS for electricity and natural gas that will be realized through efficiency programs, stronger building codes, and appliance standards, among other policies.
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. Governments can also adopt financial incentives in conjunction with energy efficiency goals such as EERSs. Financial incentives reward companies that exceed efficiency goals, are neutral towards those that achieve goals, and fine utilities who lag behind those goals.
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 2004, 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. Previous CAFE standards had not been changed since 1985, and average fuel efficiency has remained around 22 mpg despite advancing technology.
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 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 includes 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. Anchorage is also working to improve its biking infrastructure, and the possibility of a commuter train between Anchorage and the Valley is increasingly likely.
Building energy codes
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. 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 opwner pays the contractor back over time with those energy savings.
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. Currently, CHP systems produce about 8% 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 22 classes of appliances. As of February 2009, 15 of those standards remain outstanding, though President Obama has directed the DOE to address the issue of appliance efficiency standards as soon as possible. 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 waver 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.
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, and incorporating energy efficiency into municipal, state, or governmental facilities increases public awareness of the financial advantages of energy efficiency. The American Recovery and Reinvestment Act of 2009 allocates funding towards improving the efficiency of both federal and state facilities and fleets. This includes $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 includes $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.
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.
American Council for an Energy Efficient Economy
Alliance to Save Energy
Energy Information Administration
United States Clean Heat and Power Association
Environmental Protection Agency
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
Renewable Energy Policy
State and federal policies that encourage renewable energy projects play an important role in their development.
At the federal level, the production tax credit (PTC) is the primary incentive tool. The PTC was passed by Congress to even the playing field between the renewable energy industry and the heavily subsidized fossil fuel and nuclear industries. The PTC currently allows the owners of qualifying renewable energy projects to take 2.2 cents off their tax bill for every kilowatt-hour of renewable electricity generated during the first ten years of the project. Though the tax credit is an important part of renewable energy project financing, its weakness has been its short-term duration. Congress has typically reauthorized the tax credit for only one or two years at a time, making it difficult for investors to plan development of renewable energy resources. The current PTC expires December 31, 2012 for wind projects, and December 31, 2013 for other renewable energy projects. Alternatively, wind and solar projects can choose to take advantage of a 30% federal investment tax credit (ITC) for facilities placed in service by 2013 if construction begins before December 31, 2011.
Historically, individual state policies have been the primary drivers of renewable energy development in the United States. The the four primary policies used across the country are net metering, renewable portfolio standards, renewable energy funds and feed-in tariffs.
Alaska’s net metering regulations, passed in 2010, apply to renewable energy systems of 25 kW or less, and require large utilities to purchase power from customers, up to 1.5% of the utility’s average load. In addition, some utilities have their own incentive programs that allow individuals to sell power back to the utilities. Fairbanks’ Golden Valley Electric Association (GVEA) has developed a Sustainable Natural Alternative Power (SNAP) program. SNAP allows customers who wish to support renewable energy development to do so by contributing to a fund that is held in escrow by the utility company. Individuals in the GVEA service area who want to produce up to 25 kW of renewable electricity for the grid are paid from the escrow fund in proportion to the amount of power they produce, plus the utilities avoided fuel cost.
U.S. Department of Energy Office of Energy Efficiency and Renewable Energy
American Wind Energy Association
Golden Valley Electric Association
Twenty-nine states and Washington D.C. have Renewable Portfolio Standards (RPS), and an additional 8 states, including Alaska, have a less binding Renewable Energy Goal. Alaska’s goal, adopted in 2010, is to generate 50% of the state’s electricity from renewable sources by 2025.
An RPS is a state law that requires utility companies to generate a specified percentage of their electricity from renewable resources by a certain date. For example, Nevada law mandates investor-owned utilities in that state produce 25% of their electricity from renewables by the year 2025. The percentage and end date vary widely from state to state. Utilities are typically given interim milestones, and must pay a fine if they do not reach those milestones. Most states allow utilities to purchase renewable energy credits (RECs) to meet the RPS standard and avoid paying fines. The RPS approach makes different entities and renewable energy resources compete to meet the standard. In addition, bills have been proposed in Congress to create a mandatory national Renewable Electricity Standard (RES).
Database of State Incentives for Renewable Energy
More than 20 states, including Alaska, have renewable energy funds (sometimes called clean energy funds), most of which are supported by small, mill-rated surcharges on energy sold to consumers. These surcharges are sometimes referred to as system benefit charges. Renewable energy funds provide support for the development of renewable energy by helping to remove market barriers, lowering financing costs, developing infrastructure, and educating the public. For example, the system benefit charges in Oregon are deposited into an independent trust that funds eligible wind, solar electric, biomass, small-scale hydro, tidal, geothermal, and fuel cell projects. These projects are supported by grants, loans, rebates, equity investments, and other financing mechanisms used by the fund.
Terms of the various funds vary from state to state. Some states have scheduled funds to last only five years. Other states have open-ended funds. Longer-term funds provide greater stability for renewable energy developers.
In Alaska, the Renewable Energy Grant Program was created in 2008 and is administered by the Alaska Energy Authority. As of 2011, the Legislature had appropriated $186 million for more than 150 qualifying projects from a wind farm in Quinhagak to a hydropower project in Gustvaus to a ground source heat pump system for the Juneau airport. This program is helping communities stabilize energy prices by reducing reliance on costly diesel fuel for electricity and heat. Between 2009-2010, projects supported by this fund displaced 1.69 million gallons of diesel for a cost savings of $3.37 million
In the states that have both an RPS and a renewable energy fund, the two policies work together to stimulate the renewable energy market. RPS standards “pull” renewable energy technologies into a state by creating a long-term market that reduces investment risk and provides a level playing field for developers. On the other hand, renewable energy funds “push” clean energy technologies by lowering market barriers through direct investment incentives and supporting the infrastructure needed to develop renewable energy. For example, in California, the fund is used to buy down the above-market costs of renewable energy. The development that takes place as a result of renewable energy funds helps states meet their RPS requirements.
Clean Energy States Alliance
U.S. Department of Energy Office of Energy Efficiency and Renewable Energy
Alaska Energy Authority
ARTs are the modern version of Feed Laws. They differ from the simpler feed laws in several important ways. Tariffs are differentiated by technology, project size, or, in the case of wind energy, by the productivity of the resource. Tariffs for new projects are also subject to periodic review to determine if the program is sufficiently robust.
In 2009, the Canadian province of Ontario enacted North America’s first comprehensive program of Advanced Renewable Tariffs. The program offers 20- to 40-year contracts to producers of wind, hydro, biomass, landfill gas, and solar photovoltaic energy at a variety of prices ranging from 10 cents/kWh to 80 cents/kWh for small residential solar photovoltaic systems. The contracts are available to homeowners, businesses, and commercial energy producers, and differentiate between small and large energy producers. Additional financial incentives are offered for projects developed by First Nations, farmers, cooperatives, and community groups.
Vermont has adopted a modest version of an Advanced Renewable Tariff. The program is capped at 50 MW and offers 20-year contracts for renewable energy producers with prices varying from 12 cents/kWh for landfill gas to 30 cents/kWh for solar photovoltaic. The town of Gainesville, Florida also generated widespread publicity in 2009 for adopting a feed-in-tariff to spur installation of solar photovoltaic systems. The tariff incentivizes solar installations at homes and businesses with 20-year contracts that pay 24-32 cents/kWh depending on the size and configuration of the system. The program limits total installations to 4 MW a year and reserves a percentage each year for small residential systems of 10 kW or less. Legislation for feed-in tariffs is currently being considered in several other states.
Paul Gipe at wind-works.org