EPA’s recently released Clean Power Plan to regulate emissions of carbon dioxide (CO2) from existing power plants under the Clean Air Act includes four building blocks that are used to establish the target CO2 emissions rate for each state. Earlier blog posts by my RFF colleagues have described these different building blocks; my focus here is on building block four, based on energy efficiency potential.
The purpose of building block four is to find the electricity generation savings that states could achieve through energy efficiency programs and factor those potential savings into the emission rate target calculation as a non-emitting energy resource. The higher the energy savings potential, the tighter the state’s emissions rate obligation under the policy, all else equal.
These calculations are based on existing state policies: 24 states have adopted Energy Efficiency Resource Standards (EERS) that target a specific minimum ratio of efficiency program related energy savings to total electricity consumption. Twelve of those states have EERS policies that require or soon will require a 1.5 percent incremental reduction in total statewide electricity consumption each year, a target that EPA adopts in its proposal.
Here’s how it works: states currently achieving 1.5 percent annual energy savings are assigned that rate in 2017 and for all future years. States that have yet to attain that amount of savings are assumed to start at their 2012 annual incremental savings rate in 2017 and then the annual savings target is incremented by 0.2 percentage points per year until it reaches 1.5 percent where it remains going forward. In both cases new energy efficiency programs are expected to yield energy savings for multiple years and these cumulated savings are reflected over 2020-29. According to EPA’s calculations, total energy efficiency potential in 2029 (which determines the target in 2030) ranges from 9.3 percent of annual electricity sales in Louisiana and Virginia to just over 12 percent in Maine.
Whether a state imports or exports power also matters. If a state is a net exporter, then its energy efficiency potential (plus any avoided transmission losses) is fully considered in setting its emissions rate targets (interim and 2030/final). But if the state is a net importer, then only the portion of savings that is generated within the state (again including transmission losses) is added to its targets.
What are the implications of all this? Like many climate and energy efficiency policy geeks, I’m still trying to figure that out as I wade through the thousand plus pages of the rule, the TSDs and the RIA. Here I offer three early observations.
First, a result of EPA’s ramping up approach to calculating a state’s efficiency potential, states with existing ambitious energy efficiency programs tend to have a greater obligation than states that are just getting started. How this feature of the policy affects cost effectiveness is an open question. On the one hand, if a state has yet to adopt energy efficiency programs and policies, one might expect there to be low cost opportunities for saving energy that have been tapped already in the more experienced states. On the other hand, more experience with running energy efficiency programs could result in learning by doing and greater results at lower cost. Or both factors could be at play simultaneously with the ultimate answer depending on how they balance out.
Second, the energy efficiency potential targets are not differentiated based on the potential for carbon reductions from these energy savings. Indeed, states with some of the highest EE potentials, including Maine, California and Connecticut, have some of the lowest historic CO2 emissions rates. In contrast some high emitting states, such as Wyoming and West Virginia, have efficiency potentials toward the lower end of the spectrum. Across the 50 states there is a small negative correlation between efficiency potential and average CO2 emissions rates (with the somewhat funky denominator that EPA uses) in 2012. This lack of correlation raises a question of whether a more targeted approach would improve both the effectiveness and cost effectiveness of this building block.
Third, building block four creates an energy efficiency target for every state and a reason to take that target seriously. This will likely be good news to states that already have energy efficiency programs and want their neighbors to do the same and to anyone trying to sell energy efficiency related services to utilities. However, the use of energy efficiency in the construction of this building block does not obligate states to incorporate energy efficiency explicitly into their compliance plans. Will states choose to expand existing or launch new energy efficiency policies as a part of the plans that they develop in response to EPA’s rule? And if states or utilities do choose energy efficiency as a means of compliance, can we be reasonably confident that the claimed energy savings and associated emissions reductions are real? I’ll look at these two questions in separate posts in the next few days.
