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Energy Efficiency: The Smart Way to Reduce Global Warming Pollution in the Northeast Energy_Efficiency.pdf

Executive Summary

Nine Northeast states from Delaware to Maine are currently working to develop a regional cap-and-trade system to limit global warming pollution from power plants. The program, known as the Regional Greenhouse Gas Initiative (RGGI), represents one of the first significant efforts to mitigate the serious impacts of global warming in the United States.

In order to achieve the greatest reduction in pollution at the least cost, energy efficiency must play a prominent role in the Northeast’s overall global warming strategy.

According to government forecasts, demand for electricity in the Northeast will increase 23 percent by 2020, making cuts in global warming pollution more difficult and more expensive than they need to be.

• The U.S. Department of Energy (DOE) projects electricity demand will increase 1.4 percent per year between now and 2020.

• To satisfy increasing demand and replace retiring facilities, the Northeast will require over 8,500 MW of new power plants. The DOE predicts that at least 85 percent of these plants will burn natural gas or other fossil fuels, which produce global warming pollution. Increasing demand also makes it more difficult to retire older, high-emitting power plants, which may be needed to ensure that the electric system continues to operate reliably.

• Under these circumstances, DOE forecasts that emissions of carbon dioxide (the leading global warming pollutant) will rise 37 million tons per year by 2020.

The Northeast has enough efficiency resources to slow and eventually halt growth in electricity demand—thus making emission reductions easier to achieve.

• A variety of state, university and nonprofit studies have identified large potential for greater energy efficiency in Northeast states. For example, New England’s currently active efficiency programs will capture less than one fifth of the region’s achievable energy savings potential by 2013.

• Deploying the achievable efficiency measures identified in these studies would reduce projected electricity demand in the Northeast by an average of 1.3 percent per year in the next decade, effectively keeping demand at 2007 levels. (See Figure ES-1.)

• Halting growth in electricity demand would reduce upward pressure on regional carbon dioxide emissions and ease the pressure to continue operating older, carbon-inefficient plants to maintain the reliability of the electric system—making progress against global warming easier to achieve.

Efficiency measures make progress against global warming less expensive.

• Efficiency measures are two-thirds less expensive than generating and delivering electricity. In 2002, New England’s public benefit fund programs produced energy savings at an average cost of 2.4 cents per kWh. In comparison, wholesale power in New England is projected to cost from 4 to over 5 cents per kWh over the next decade—and over 9 cents per kWh including the cost of transmission infrastructure and energy losses.

• In addition to saving consumers money directly, reduced energy demand leads to lower energy prices. For every 1 percent reduction in national demand for natural gas, prices decline 0.8 percent to 2 percent below otherwise expected levels.

• Deploying identified cost-effective energy efficiency measures over the next decade would reduce Northeast electricity demand by 11 percent and utility natural gas demand by 11 percent versus projections in 2015— reducing the average price of electricity by 0.4 cents per kWh and the average wellhead price of natural gas by 2.6 cents per thousand cubic feet. By 2020, Northeast consumers would save a net of $13 billion, lowering the residential consumer’s average energy bill by $1.56 a month (before factoring in the cost of a carbon cap).

• At the same time, efficiency measures will improve reliability of electric service and help avoid the need for special reliability payments to generators. Pending approval, new “Locational Installed Capacity” (or LICAP) charges could go into effect in 2006, giving generators an incentive to supply transmission-constrained areas but costing consumers as much as $13 billion over the next five years.

• When consumers spend less on energy— much of which goes outside the region to pay for fossil fuels—they spend more on local goods and services, stimulating the economy. The Regulatory Assistance Project estimates that from 2000 to 2010, existing energy efficiency programs in New England will create $2 billion in economic output, over 1,000 jobs annually, and nearly $700 million in wages—while reducing carbon dioxide pollution by 2 million tons per year.

The economic benefits of efficiency programs will allow for a tighter carbon cap without requiring additional sacrifices by ratepayers.

• Efficiency savings could offset increases in electricity cost caused by the carbon cap, enabling a stronger cap to be set at the same or less cost.

• Combining energy efficiency with a strong carbon cap would encourage high-polluting coal- and oil-fired power plants to reduce their emissions or give way to low-carbon forms of generation, delivering significant cuts in pollution.

• However, energy efficiency won’t happen automatically in a cap-andtrade program, because market barriers and other fundamental obstacles prevent efficiency measures from competing with supply-side measures on equal footing.

Northeastern states should make energy efficiency a central part of their plan of attack on global warming.

• The forthcoming carbon cap-and-trade policy under negotiation in the Northeast should explicitly include support of energy efficiency programs in order to be most effective. Emission allowances (that is, permits that allow a facility to emit carbon dioxide) should not be given to generators for free. Instead, they should be sold at market price and the proceeds should be dedicated to fund energy efficiency and other public benefit programs, reducing the overall cost of the program and enabling the Northeast to meet more meaningful pollution reduction targets.

• The cap should reduce global warming pollution to 25 percent below current levels by 2020, growing tighter over time.

• Reductions should be achieved first and foremost from a mandatory cap on carbon dioxide emitted from fossil-fuel power plants in the Northeast. Electricity imports should be included in the cap to prevent leakage. Offsets outside the regional electricity sector should not be considered until the capand- trade program has matured and been proven effective. If offsets are eventually considered, they should meet conservative and rigorous criteria to ensure that they enhance the benefit of the program.

• Northeastern states should pursue a comprehensive set of energy efficiency policies outside of and in parallel to the cap and-trade program, including but not limited to:

o Establishing dedicated efficiency programs (like Efficiency Vermont) that are independent of electricity and gas service providers and ensuring enough funding to tap achievable efficiency potential;

o Improving residential and commercial building codes;

o Setting minimum appliance efficiency standards;

o Stimulating the deployment of combined heat and power technologies; and

o Educating consumers about energy efficiency opportunities.