Energy Efficiency Standards, Codes,
and Programs as a Way to Limit or
R
Reverse
th
the Eff
Effectt off Capping
C
i
Greenhouse Gas on Energy Price
David B. Goldstein, Ph.D.
Natural Resources Defense
Co ncil
Council
dgoldstein@nrdc.org
Presented at the Washington Dialogue Series:
Trade and Climate Change
5 May 2009
S
Summary
off Presentation
P
t ti
„
Energy efficiency policy can promote economic
development
Equipment
E i
t
efficiency
ffi i
standards
t d d and
d building
b ildi energy
codes are already producing large savings in
jurisdictions that have pursued them
These policies produce energy services at less than
half the cost of conventional energy use, and
By restraining demand, they can reduce energy price
Smart growth of cities reduces oil consumption,
pollution, and congestion, with even larger savings
Basic Principles of Energy
Efficiency Policies
„
Efficiency substitutes for new supply
„
Efficiency is bigger
bigger, cheaper
cheaper, faster
faster, and
greener
„
Efficiency improves a nation’s trade
balance
U
Unexpected
t dB
Benefits
fit off Efficiency
Effi i
„
Cost less than predicted or even less than
zero,, when markets are mature
„
Promotes innovation and competitiveness
„
Non-energy benefits may greatly exceed
the value of energy
gy savings
g
Energy Codes and Standards are the Foundation
of Effective Energy Policies for Buildings and
Equipment
„
Buildings and equipment account for some 40%
of greenhouse gas emissions in the developed
world and a smaller but quickly growing fraction
in developing countries
„
Efficiency standards and codes have produced
dramatic energy savings by themselves, but
Codes
and standards are the foundation of a range of
policy interventions that can do even more
Annual Energy Savings from Efficiency Programs and Standards
45,000
~15% of Annual Electricity Use in California in 2003
40,000
35,000
25,000
Utility Efficiency
Programs at a cost of
~1% of electric bill
20,000
15,000
Building Standards
10,000
0,000
5,000
Appliance Standards
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
0
1975
GWh/year
30,000
Per Capita Electricity Consumption
kWh/person
14,000
12,000
12,000
,
10,000
8,000
8,000
6,000
4,000
Californian’s have a net
savings of $1,000
$1 000 per family
2,000
California
United States
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
-
Source: http://www.eia.doe.gov/emeu/states/sep_use/total/csv/use_csv
Energy Codes and Standards are the Foundation
of Effective Energy Policies for Buildings and
Equipment II
„
A broad and deep array of market failures
(described later) prevent the introduction of best
technologies and designs in all countries
„
Strong policies are necessary to overcome these
barriers
„
These policies can be strikingly successful
particularly when complementary policies are
pursued together
Energy Codes and Standards are the Foundation
of Effective Energy Policies for Buildings and
Equipment III
„
Codes and standards promote continuous improvement
„
Codes and standards for efficiency (coupled with other
policies)
li i ) create
t ffunctioning
ti i markets
k t th
thatt allow
ll
continuing
ti i
technology innovation
Just as markets for consumer electronics and p
photography
g p y show
dramatic continuing improvements, markets for energy efficiency
can do the same
This push towards innovation can result in costs being much
l
lower
than
th projected,
j t d or even lower
l
th
than zero
Impact of Standards on Efficiency of 3 Appliances
110
90
Effective Dates of
National Standards
Effective Dates of
State Standards
80
Gas Furnaces
=
100
Index
x (1972 = 100)
=
70
60
Central A/C
50
EER = 13
40
Refrigerators
30
20
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
Year
Source: S. Nadel, ACEEE, in ECEEE 2003 Summer Study, www.eceee.org
2000
2002
2004
2006
Annual Usage of Air Conditioning in New Homes in California
A
Annual
ld
drop averages 4% per year
Initial California Title 24
Building Standards
California Title 20
Appliance Standards
1976-1982
Estimated Impact of
2006 SEER 13
Standards
Source: CEC Demand Analysis Office
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1992 Federal Appliance
Standard
B
Benefits
fit off Codes
C d and
d St
Standards
d d
„
Appliance efficiency standards already adopted
in the U.S. will save 200,000 MW by 2030 and
produce direct economic benefits over one half
trillion dollars.
„
Building efficiency standards savings in
California (pop. ~38 M) will exceed 14,000 MW
as off year 2010 ((compared
d tto about
b t 50
50,000
000 MW
of total electricity).
Standards Can Decrease Energy
Costs
„
Small fluctuations in energy demand in
global markets,, regional
g
g
markets,, and
continental markets can cost changes in
gy p
price
energy
Thus,
reductions in energy use due to
efficiency policies can cut price
Effects of Appliance Efficiency
Standards on Price
„
„
„
NRDC and the Dow Chemical Company have estimated
that efficiency standards on American home heating
furnaces alone would reduce wholesale natural gas
prices
i
b
by att lleastt 15¢/MBt
15¢/MBtu, equivalent
i l t tto almost
l
t 5% off
current wholesale prices for natural gas
This relationship
p suggests
gg
that for every
y dollar saved
directly from appliance efficiency standards, some 80¢
additional will be saved by lowering energy prices for
everyone
This effects change dramatically the dynamics of how a
comprehensive greenhouse gas emissions reduction
strategy can affect price (see next slide)
Failures of the Market
„
M k tB
Market
Barriers
i
i l d
include:
Split
incentives
Lack of information
„
Market Failures include:
Diffuse
decisionmaking
Failures of price competition for new products
Failures of the Market II
„
Human failures
Peer
pressure
“Bounded rationality”
y – not p
paying
y g attention
Loss aversion, risk aversion, status quo bias
„
Institutional failures
The
role of industry and industry associations in
writing regulations
To the importance of mass markets
Informal p
private sector regulations
g
that limit
efficiency
Consequences of Failures of the
Market
„
Very low price elasticities for energy
efficiency
A
recent University of California at Davis
study on gasoline price elasticity showed a
short-term elasticity of -4% to -7%
Efficiency
Effi i
levels
l
l d
do nott vary b
between
t
U
U.S.
S
states as a function of price or climate
Consequences of Failures of the
Market II
„
Therefore, pure cap-and-trade programs for
emissions will not improve energy efficiency very
much
If
the current market ignores opportunities with a
return
t
on investment
i
t
t off 50%,
50% and
d emissions
i i
ttrading
di
raises the return to 60%, how much difference will
that really make?
Emissions
trading CAN affect fuel choice and
behavior, however
Correcting market failure allows
industry to spend less on energy
„
In the 1990s citizens groups were
pressuring Dow Chemical to reduce
emissions of toxic materials.
NRDC
negotiated
g
an agreement
g
under which
a consultant would look for cost effective
waste minimization opportunities.
The
Th consultant
lt t ffound,
d and
dD
Dow iimplemented,
l
t d
process changes to cut emissions by 44%.
Annual return on investment was 160%
160%.
Assistance to Industry to
Reduce Emissions Cuts their
C t and
Costs
d IImproves P
Profit
fit
„
This experience
experience, though stunningly
successful, was never replicated in
another Dow plant
plant, nor by other
companies in the same industry.
„
Industrial efficiency programs can
counteract and reverse energy cost
increases to industry from emissions caps
Opportunities for Emissions Cap
and Efficiency
„
Assembly Bill 32: California Global Warming
Solutions Act of 2006
(http://www.solutionsforglobalwarming.org/) sets a
carbon cap but allows the California Air Resources
B
Board
d to
t d
develop
l implementing
i l
ti regulations
l ti
Current
studies suggest that 80% of the
emissions reductions will be obtained from direct
efficiency and renewables policies and only 20%
from emissions permit trading
Energy Efficiency Offers Consumer Cost Benefit
RGGI Modeling Results: Wholesale Electric Price Increases with
and without Expanded
p
Efficiency
y Programs
g
Estimated cost
without new
efficiency
Estimated
cost with
expanded
efficiency
Source: Daniel Sosland, Environment Northeast ACEEE Summer Study Paper 2008
C
Conclusions
l i
„
Cap-and-trade-and-walk-away may have
impacts
p
on energy
gy costs that can affect
the terms of trade, BUT
„
Cap-and-invest
Cap
and invest can mitigate or reverse
these effects by using proceeds of
emissions permits to fund effective policies
Effective Policies:
„
Set mandatory declining greenhouse gas emission
caps
„
This gets managers’ attention as well as funding policies
Mandatory standards that encourage performancebased compliance
Regular revisions to higher efficiency
Standards include criteria for energy ratings
„
Applicable to buildings
buildings, appliances
appliances, equipment
equipment, and cars
Simple normative labels to distinguish the most
efficient buildings and equipment, such as the U.S.
“Energy Star®” and “LEEDTM”
Effective Policies: II
„
IInformative
f
ti labels
l b l tto provide
id th
the iinformation
f
ti
needed to establish property values for energy
efficiency
The
Russian “Energy Passport”
Building energy ratings required by the EU “by 2006”
„
Managed incentives for modest improvements
(~15%-30%) beyond the standards.
Some
„
of these programs can be operated by utilities
Long-term incentives for 50%-75% savings.
S.822/H.R.
1385 is a current example
Effective Policies III:
„
Reform utilityy and home lending
g
regulation to align customer benefit with
profit
Current
home lending practices ignore the cost of
energy and transport, and likely contributed to the
global economic crisis
„
Encourage location efficient development
by:
Reducing
regulatory restrictions on compact and
mixed use development
Enhancing transit and other non-auto infrastructure
Additional Information
Residential and Industrial Per Capita Electricity Use
4500
Cal res
Cal ind
US res
US ind
Cal comm
US Comm
4000
3500
2500
2000
1500
1000
500
year
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
19
70
19
68
19
66
19
64
19
62
0
19
60
kwh per person
n
3000