Policy changes needed to maximize use of energy efficiency


David Hoppock,
Climate Change
Policy Partnership,
Duke University
Durham, NC, U.S.A. — (METERING.COM) — December 11, 2008 – States should separate utilities’ revenues from electricity consumption and the federal government should create a national energy efficiency resource standard if the United States is to take full advantage of energy efficiency, according to a new report by Duke University’s Climate Change Policy Partnership.

The report says that as concerns about climate change, energy security and rising energy costs mount, greater investment in energy efficiency represents the most cost effective, near term solution for increasing energy security and significantly reducing U.S. greenhouse gas (GHG) emissions. Neither renewable energy sources, nor nuclear plants or coal”fired power plants with carbon capture and storage are positioned to provide significant power in the next 10 to 15 years. Fortunately, energy efficiency presents a proven, low cost method to significantly reduce electricity demand and GHG emissions in the near term.

The report “Transforming Utility and Ratepayer Support for Electrical Energy Efficiency Nationwide,” is one of a series addressing policy toward a low carbon electricity sector and the barriers to achieving this.

The report says there are numerous, well documented barriers to increased investment in energy efficiency. Traditional utility regulation discourages investment in energy efficiency and encourages utilities to increase sales as much as possible within their existing capacity. Under traditional regulation, if a utility sells less electricity than is projected in the rate case, the utility may not have sufficient revenues to covers its costs, providing a strong disincentive to invest in energy efficiency. Generators in restructured markets and wholesale electricity providers place no value on energy efficiency because they can only earn revenues from the electricity they sell. Nevertheless, multiple states have successfully implemented policies to overcome these barriers to investment in energy efficiency.

Other policy options to increase nationwide investment in energy efficiency include:

  • Providing incentives to states that require utility or ratepayer investment in energy efficiency.
  • Providing incentives to states that reduce per capita electricity use by 0.5 percent per year.
  • Establishing a federal electricity surcharge to fund national energy efficiency programs.

“When considering any electricity policy, policymakers should focus on how much customers pay for electricity (i.e., their total electricity bill), not just electricity rates,” the report says. “Many efficiency programs raise rates slightly in the short term but create significant, long-term benefits for customers on their future energy bills.”

At the same time the International Energy Agency (IEA) has issued a set of 25 energy efficiency policy recommendations. Among these is a recommendation for action across sectors, including increased investment in energy efficiency and national energy efficiency strategies and energy. There should also be action to promote utility end-use energy efficiency schemes, as utilities can play an important role in promoting energy efficiency.

Other recommendations cover the buildings, appliances and equipment, lighting, transport and industry. If implemented the recommendations could reduce global CO2 emissions by 20 percent per year (8.2 GtCO2/yr) by 2030.