HISTORICAL GAINS IN ENERGY EFFICIENCY, Ahmad Faruqui Sanem Sergici Lafayette, California February 8, 2008

2 US consumption growth slowed down markedly after the OPEC Embargo in 1973

3 The slow down in growth can be used to derive an upper-bound for the gain in energy efficiency By fitting a simply regression model, we have estimated the annual (exponential) growth rate of electricity consumption during period at 7.6% ► This is what the growth rate would have been during the post-75 period absent the EE initiatives and other factors (such as structural change in the economy and slower growth in productivity) Using the same methodology, we have estimated the growth rate of electricity consumption during period at 2.5% The wedge between electricity consumption series w/ and w/o energy efficiency gains is 12,571 TWh in 2006

4 Electricity consumption in 2006 would have been 300 percent higher at pre-embargo growth rates Source: Data are taken from EIA Annual Energy Review 2006 Wedge=12,571 TWh

5 The wedge expressed as percentage of electricity consumption in the absence of energy savings

6 The wedge in logarithmic terms Source: Data are taken from EIA Annual Energy Review 2006

7 About 40 percent of total energy consumption is due to electricity 40% of total energy consumption can be attributed to the electric energy consumption.

8 ACEEE has also quantified the historical gain in energy efficiency for the US as a whole Between , total U.S. energy consumption increased from 68 to 100 quads ACEEE finds that absent the efficiencies, U.S. energy consumption would have been 200 quads in 2006 This corresponds to a wedge of 100 quads (29,310 TWh) 11,724 TWh (or 40 percent) of this wedge can be attributed to electricity savings This is very close to our estimate of the wedge (12,571 TWh)

9 Question of the day What are the components of the wedge? I.e., what is the role of the following factors: ► Electricity prices ► Codes and standards for appliances and buildings ► Lower GNP growth ► Structural change in the economy away from heavy industry ► Utility DSM programs The answers to these questions are available in bits and pieces

10 The California Energy Commission (CEC) has quantified the components of the wedge in the state

11 According to CEC estimates, building& appliance standards constitute a larger portion of energy savings for residential customers compared to that for commercial customers

12 Share of building& appliance standards in total savings increases over time

13 Savings due to utility and agency programs expressed as percentages of total load forecast remain relatively constant over time

14 Additional evidence comes from a paper entitled, “Energy Efficiency Policies: A Retrospective Examination” (*) This paper reviews the literature and identifies up to 4 quads annual energy savings (approximately 1,172 TWh) At least half is attributable to appliance standards and utility based DSM Implementation of residential appliance standards leads to an estimated residential annual electricity energy savings of 0.59 quads (approximately 172 TWh) in 2000 Incremental energy savings from our analysis is 713 TWh in 2000 ► 24% (172/713) of the savings can be attributed to the residential appliance standards Total electric energy consumed in 2000 was 3,592 TWh (EIA, AER 2006) This implies that residential appliance standards saved 5%(172/3592) of total electric energy consumed in 2000 (*) Gillingham, Kenneth, R. Newell, and K. Palmer (2006), “Energy Efficiency Policies: A Retrospective Examination,” Annual Review of Environmental Resources, 31:

15 EIA has compiled data on utility DSM spending levels and associated efficiency gains This implies that utility based DSM programs saved 1.5% total electric energy consumed in 2000 (but the reference point is not pre- embargo trends). 54 TWh in 2000 corresponds to 8% (54/659) of the total savings we have estimated for Source: Energy Efficiency Policies: A Retrospective Examination, 2006

16 US electricity intensity stopped growing after the 1973 embargo and began to decline in the mid-1990s

17 Several factors drive US electricity consumption Source: Data are taken from EIA AER 2006 and BEA 2008

18 U.S. Cooling and Heating Degree Days Price of Electricity

19 Value Added Shares of Goods and Services Industries as % of U.S. GDP

20 U.S. GDP and Electricity Consumption

21 So how we do put all this together? Regression models are being run with different combinations of variables to decompose the wedge Initial results are encouraging ► Price effect has been estimated ► GNP effect has been estimated ► Weather effects are minimal ► The rest can be attributed to efficiency programs and codes and standards Results will be available sometime next week

22 What is the future potential for energy efficiency? A detailed end-use cum regional assessment is being carried out by Global Aggregate results at the national level are now available from an expert survey

23 Survey results : Part I Part I involved 2 questions. 50 survey participants returned their Part I responses. Not all 50 participants opined on all questions in Part I- there are several blank responses for each question.

24 Q1- In your view, at the national level, what percent of annual industry revenues are likely to be spent on energy efficiency in each year below? Mean values for 2010, 2020, and 2030 are respectively 3%, 6%, and 8%

25 Distribution of Responses: Q1, 2010

26 Distribution of Responses: Q1, 2020

27 Distribution of Responses: Q1, 2030

28 Q2- In the preliminary 2008 Annual Energy Outlook “Reference” Forecast from the U.S. Energy Information Administration, U.S. electricity consumption is projected to increase by 30% between 2008 and In your view, how much of this projected load growth is likely to be offset by energy efficiency (EE)? On the average, participants conjecture that 40% of the projected increase will be offset by EE.

29 Distribution of Responses: Q2