Incentives for Low-Income Energy Efficiency in the Clean Power Plan Karen Palmer Energy Efficiency, Conservation and Low-Income Households Knoxville, TN March 31, 2016

 Energy efficiency (EE) is an important part of federal and state policies to address greenhouse gas emissions contributing to climate change.  Even absent climate concerns the apparent energy efficiency gap has been cited as a rationale for numerous policies to promote EE and save consumers money.  Low-Income EE is important because  Energy costs are a higher share of household incomes  Low-income households are  more likely to receive bill assistance  more likely to be credit constrained  more apt to be renters so more prone to split incentives problems  tend to have less efficient appliances and homes  disproportionally impacted by climate policies that raise energy prices Introduction

Energy Efficiency and Low-Income Households Source: EIA 2009 Residential Energy Consumption Survey

Low-Income EE Programs are Less Cost-Effective Source: Hoffman et al. (2015) Lawrence Berkeley National Labs This is largely whole house weatheri- zation programs.

 Most low-income programs focus on whole house upgrades as done by the DOE Weatherization Assistance Program (WAP).  A recent experimental study (Fowlie et al. 2015) finds that low income programs are performing below expectations  Realized energy savings are well below ex ante modeling predictions  Getting eligible households to enroll is challenging  Another national study of WAP (ORNL 2015) finds  Closer relationship of energy savings benefits and investment costs per household (for a sample of more intensive energy consuming homes)  Non-energy benefits are important to rounding out the cost-benefit story  EPA’s Clean Power Plan includes incentives for EE in low-income communities under the Clean Energy Incentive Program. Low-Income EE Policies are Attracting Attention

June 2013 President announces Climate Action Plan Regulation of power sector under the Clean Air Act June 2014 release of proposed Clean Power Plan Sets federal goals for states for existing power plants State-based planning process to achieve federal goals August 2015 release of final Clean Power Plan Includes proposed Federal Plan / Model Rule Simultaneous release of final 111(b) standards for new generators States have one year to indicate planning approach and until 2018 to develop plan Compliance begins in 2022 Expected 32% GHG emissions reduction from 2005 by 2030 Supreme Court issues stay of the CPP on Feb 9, 2016 Ultimate future of rule to be decided when Court rules EPA still under obligation to regulate CO 2 emissions Background on the Clean Power Plan (CPP)

 The CEIP provides a way to ease state compliance with CPP  Optional program sets aside 300 million tons of extra emissions for states that opt in; states need to match from own state emission budget  Each state’s share of set aside tons is based on the size of the challenge posed by its CPP emissions goal The Clean Energy Incentive Program (CEIP) As currently configured, CEIP credits will be awarded disproportionately to Texas and coal- belt states in the East and Midwest.

 The CEIP provides incentives for early action  CEIP provides one credit per MWh of qualified new renewable energy (RE) generation in 2020 and 2021 (just prior to CPP compliance period that begins in 2022)  CEIP provides two credits for verified energy savings in 2020 and 2021 from EE in low income communities  Recent Congressional action to extend the Investment and Production Tax Credits for renewables suggests  Lots of RE will be forthcoming in response to new tax incentives  CEIP investment in RE could be redundant  to promote “additional” investment, CEIP should focus on EE The Clean Energy Incentive Program (CEIP)

 The answer depends on several factors: 1.Overlap between CEIP credit availability and number of eligible households in a state 2.Electricity intensity of energy use in eligible households 3.Value of CEIP credits 4.Satisfactory evaluation, measurement and verification of EE savings from low-income programs necessary for crediting Will the CEIP Effectively Promote Low-Income EE?

Do CEIP Credits Effectively Target Low-Income Populations? Darker colors indicate higher concentrations of low-income households. Darker colors indicate more CEIP allowances per low-income household. With the exception of West Virginia and Kentucky, states with highest concentrations of low-income households do not have highest availability of CEIP allowances per low-income household.

Electric Heat in Low-Income Households Percentage of Low-Income Households with Primarily Electric Heat Source: EIA 2009 Residential Energy Consumption Survey Low income households are more apt to heat with electricity in Southeast, Northwest and Texas.

Electricity Use for Heating and Cooling Average Annual Electricity Use for Heating and Cooling in Low-Income Households Source: EIA 2009 Residential Energy Consumption Survey Electricity use for heating and cooling is highest in the Southeast, Arizona and Texas.

 The incentive that low-income EE program implementers earn depends on the CPP CO 2 price in and beyond  CO 2 price is subject to much uncertainty  EPA Regulatory Impact Assessment (RIA) finds state CO 2 prices ranging between $0 and $14.50 per ton in first compliance period  RFF modeling analysis finds CO 2 prices close to zero until 2030  At crediting rate of 1.6 CO 2 allowances per MWh saved the value of the incentive at the highest state price per EPA is $0.023 per kWh saved  Will not close the $0.095 gap in per kWh costs between low-income EE and average EE (that requires a $60 per ton CO 2 price)  EPA modeling assumes state-by-state compliance; CO 2 prices and value of CEIP credits could be even lower if states trade  Banking of CO 2 allowances or increase in natural gas prices could raise the CEIP incentive value Value of CEIP Credits is Likely to be Low

 CEIP expands a state’s CO 2 emissions constraint.  EPA requires third party verification of energy savings for CPP  CEIP early reductions and energy savings during compliance period  Third parties remove incentives to inflate savings if independent  For good evaluation, design with evaluation in mind  Elements of randomization create ideal control group  Eligibility thresholds or waiting lists create good control group  Access to before and after data on energy consumption  Sufficiently large sample sizes to identify expected effects  CEIP may create opportunities to experiment with new approaches to low-income EE.  Base evaluations on actual data whenever possible. Evaluation of Energy Savings is Important All energy efficiency programs, policies and measures have a behavioral component that should be accounted for in evaluation. Excellent guide to evaluation of energy savings from behavioral EE programs that should be more broadly applied.

 Improving energy efficiency in low-income households could address a number of social issues that are not addressed by the CEIP.  Low-income weatherization policies are less effective and cost- effective than other EE policies at saving energy.  Potency of the CEIP in encouraging low-income EE is uncertain but likely low.  CEIP could provide an opportunity to experiment with new approaches to improving EE delivery to low-income communities and help identify potentially more effective and cost-effective approaches. Take Away Messages