1. Energy Efficiency’s Role in Greenhouse Gas Policies
Kathleen Hogan
Director
Climate Protection Partnerships Division
U.S. Environmental Protection Agency
National Association of Regulatory Utility Commissioners
February 19, 2008
Washington, DC

2. Overview Many states focused on GHG reductions/policies
EE consistently identified as a key low-cost GHG reduction strategy at state and national levels
Reduce GHG emissions at lower overall cost
Specific EE policies are necessary to capture low cost EE
Price signals from GHG policies are not sufficient to realize cost-effective EE potential
E.g., price increases under proposed “cap and trade” or carbon tax approaches would only begin to tap this potential.
Known market barriers remain and must be addressed to realize this potential.
National Action Plan for Energy Efficiency
Role in addressing barriers
Key New/Ongoing Efforts

3. Greenhouse Gas Reduction Efforts at State Level
25+ states with broad-based Climate Action Plans
22 states committed to GHG reductions thru “cap and trade” or other market-based approaches
17 states have announced GHG reduction targets

4. 25+ States with Completed Climate Action Plans
Source:
Pew Center

5. 22 States Committed to Regional Carbon Markets (w/ an additional 8 “observing”)
Source:
Pew Center

6. Regional Carbon Markets
Regional Greenhouse Gas Initiative (RGGI)
Created December 2005
“Cap and trade” on CO2 from power plants beginning in 2009
Western Climate Initiative
Initiated February 2007
“by August 2008, a market-based system – such as a cap-and-trade program covering multiple economic sectors – to aid in meeting” GHG reduction targets.
Midwestern GHG Reduction Accord
Committed to “develop a market-based and multi-sector cap-and-trade mechanism” to achieve GHG reductions
Full implementation within 30 months of November 2007 signing

7. 17 States with GHG Reduction Targets
Source:
Pew Center

8. EE is a Key Low-cost GHG Reduction Strategy
U.S./International Scale Analysis
McKinsey
EPRI PRISM
IPCC
State Examples
13 states with EE Resource Standards
Most tied to GHG reduction strategies
Variety of EE strategies play leading role in each of the 25 Climate Action Plans including
Lead by Example approaches for government facilities
Utility programs and policies
EE program funding
RGGI
25% minimum “Public Benefits Allowance Allocation”
Most states have chosen to exceed

9. McKinsey, December 2007 U.S. GHG Abatement Mapping Initiative
In McKinsey’s “Mid-range” case, 3.0 gigatons are abated at below $50/ton CO2e, 1.1 gigatons (37% of total) comes from EE at “negative cost.”
“Mid-range case brings emissions below current levels but not as far as current legislative proposals.”
This is from December 2007 report, “Reducing GHG Emissions: How Much at What Cost?”
John Creyts speaking at NARUC ???

10. McKinsey, December 2007 (cont’d)
U.S. could reduce GHG emissons in 2030 by 3.0 to 4.5 gigatons of CO2e using tested approaches and emerging technologies.
Executive Summary:
“These reductions would involve pursuing a wide array of abatement options available at marginal costs less than $50 per ton, with average net cost to the economy being far lower if the nation can capture sizable gains from energy efficiency.”
“Unlocking negative cost options would require overcoming persistent barriers to market efficiency, such as mismatches between who pays the cost of an option and who gains the benefit (e.g., the homebuilder versus homeowner), lack of information about the impact of individual decisions, and the consumer desire for rapid payback …”

11. EPRI’s PRISM Analysis Through 2030
EPRI 2007, “The Power to Reduce CO2 Emissions, The Full Portfolio”
“A diverse portfolio of advanced technologies will be required. No single technological “silver bullet” will suffice. Rather, a full portfolio is needed that includes efficiency, renewable energy resources, nuclear, coal with CCS, and other technologies …”
The End-Use Efficiency wedge assumes reduction of baseline electricity growth rate of ~30% and is consistent with the 20% intensity improvement mandate for federal buildings mandated in 2005 EPAct (but extending it to R, C, and I sectors).

12. Intergovernmental Panel on Climate Change (IPCC), 4th Assessment Report (AR)
There is a significant economic potential for the mitigation of greenhouse gas emissions from all sectors over the coming decades, sufficient to offset growth of global emissions.
“substantial reductions in CO2 emissions from energy use in buildings can be achieved using mature technologies for energy efficiency (high agreement, much evidence).
“survey of literature indicates that there is a global potential to reduce approximately 29% of the projected baseline emissions by 2020 cost-effectively [negative cost] in the residential and commercial sectors (high agreement, much evidence).”
OECD minus EIT includes US, Canada, Mexico, western Europe, Japan, Australia, Korea, and New Zealand.
Climate Change 2007, the Fourth Assessment Report (AR4) of the United Nations Intergovernmental Panel on Climate Change (IPCC), is the fourth in a series of such reports. The IPCC was established by the World Meteorological Organization (WMO) and the United Nations Environment Programme (UNEP) to assess scientific, technical and socio-economic information concerning climate change, its potential effects and options for adaptation and mitigation.

13. IPCC AR 4: EE Is A Critical Component of GHG Abatement Portfolio
The range of stabilization levels can be achieved by deployment of a portfolio of technologies that are currently available and those that are expected to be commercialised in coming decades.
This assumes that appropriate and effective incentives are in place for development, acquisition, deployment and diffusion of technologies and for addressing related barriers

14. Price Signals Insufficient to Realize All Cost-effective Energy Efficiency
Energy efficiency faces known, persistent market barriers
Landlord – tenant problem
Builder – buyer problem
Poor/inadequate information
Lack of capital
Price increases resulting from mandatory carbon reduction policies (e.g., cap and trade on power sector or carbon tax) will not address EE market barriers.
Energy demand is relatively price inelastic
Complimentary policies to address these barriers are important to control costs of meeting GHG reduction objectives.
Many of the policies at the state and local level

15. National Action Plan for Energy Efficiency Addresses Utility Barriers
Recommendations
Recognize energy efficiency as a high-priority energy resource.
Make a strong, long-term commitment to implement cost-effective energy efficiency as a resource.
Broadly communicate the benefits of and opportunities for energy efficiency.
Provide sufficient, timely and stable program funding to deliver energy efficiency where cost-effective.
Modify policies to align utility incentives with the delivery of cost-effective energy efficiency and modify ratemaking practices to promote energy efficiency investments.
Released on July 31, 2006 at the National Association of Regulatory Utility Commissioners meeting
Goal: To create a sustainable, aggressive national commitment to energy efficiency through gas and electric utilities, utility regulators, and partner organizations
60 member public-private Leadership Group developed five recommendations and commits to take action
Commitments to energy efficiency by 120 organizations
Released its Vision for 2025 in November 2007

16. Vision for 2025 Released November 12, 2007 Long-term Aspirational Goal
To achieve all cost-effective energy efficiency by the year 2025
Equivalent to more than 50% of expected growth over next twenty years
Framework for implementing Action Plan recommendations
Puts the 5 recommendations into Action
Is a living document; open to new ideas; will be refined
Is a plan – need to know where you want to go in order to get there
A challenge for new thinking
10 Implementation Goals
Action needed over next years to lay policy foundation by 2025
Highlights need for new technology
Offers initial approach to measure progress
Currently being refined by Leadership Group
Not a mandate; respects state processes – not one size fits all

17. Vision’s 10 Implementation Goals
Establishing Cost-Effective Energy Efficiency as a High-Priority Resource
Developing Processes to Align Utilities Incentives Equally for Efficiency & Supply Resources
Establishing Cost-Effectiveness Tests
Establishing Evaluation, Measurement, and Verification Mechanisms
Establishing Effective Energy Efficiency Delivery Mechanisms
Developing State Policies to Ensure Robust Energy Efficiency Practices
Aligning Customer Pricing and Incentives to Investment in Efficiency
Establishing State of the Art Billing Systems
Implementing State of the Art Efficiency Information Sharing and Delivery Systems
Implementing Advanced Technologies

18. Key New/Ongoing Efforts
National Action Plan for Energy Efficiency considering issue paper in this area for 2008
Energy Modeling Forum (EMF) has committed to a new study (EMF-25) addressing “energy demand and efficiency in a growing economy” and notes the potential for EE to contribute to reduced carbon intensity.
States continue to evaluate and implement options to leverage energy efficiency within GHG reduction strategies
The EMF (Energy Modeling Forum) was established at Stanford University in 1976 to provide a structured forum for discussing important energy and environmental issues. Studies are organized around an ad hoc working group that focuses its discussion by comparing the results of different market and planning models. Participants are leading energy experts and advisors from government, industry, universities, and other research organizations.