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Aggressively Promote Energy Efficiency

The next best source of new energy is the energy we can save every day. Immediate benefits can be realized by increasing building efficiency and appliance standards, two areas with high energy savings potential. We must explore new business models that reward energy savings, especially for utilities and ultimately the customers. We must expand the suite of voluntary programs, mandates, and fiscal incentives for greater benefits of energy efficiency.

While solving our energy challenges is a long-term proposition, we can realize almost immediate near-term benefits by better harnessing the energy we unintentionally waste every day and more robustly utilizing energy efficiency as a crucial component of our nation’s energy portfolio. By doing so, we can liberate a tremendous amount of energy for more productive purposes and save consumers and businesses unnecessary expense.

The United States has steadily improved its energy intensity—that is, energy use per unit of gross domestic product (GDP)—since 1970, and high energy prices, new regulatory requirements, and advances in technology have stimulated greater efficiency since about 2000. In 1970 it took about 18,000 Btu to produce one dollar of GDP; it now takes a little less than half of that. By 2030, the Energy Information Administration (EIA) projects it will take 5,800 Btu for each dollar of GDP (Figure 1), which largely reflects a continuation of the historical rate of improved efficiency of about 1.8% a year since 1990. However, U.S. energy intensity continues to lag behind other developed countries. Japan and Europe, for example, use about 20% to 30% less energy to produce a dollar of GDP. Gains in energy efficiency over the past 30 years are offsetting the need for 50 quadrillion Btus today, or roughly one-half of United States’ total consumption. While improvements in technologies and higher energy prices account for the majority of these gains, public policies such as appliance and vehicle efficiency standards and building codes are responsible for at least 20% of the improvement.

Given the projected growth in demand in the United States, achieving the historical rate of energy efficiency improvements projected by EIA is not enough; we need to do more. As it has been for the past three decades, public policy will be a key determinant in how quickly and widely we can improve the efficiency of our economy. How rapidly these reductions take place, however, will be determined by the turnover of capital stock, advances in technology, and capital investment. Allowing more rapid depreciation of capital equipment through the federal tax code would provide incentives for new investment that would accelerate reductions in energy intensity and carbon intensity. Benefits from becoming more energy efficient are not solely in the domain of energy consumption. We can achieve lasting benefits through policies that promote greater energy efficiency from primary energy production all the way through to end use. It is not enough to make our buildings, appliances, lighting, and automobiles more efficient in their use of energy; we must also increase efficiency throughout the energy delivery chain through the use of new technology. The processes that mine coal and uranium; produce oil and natural gas; enrich and convert uranium into nuclear fuel; refine crude oil into gasoline and diesel; convert coal, natural gas, nuclear-generated steam, wind, geothermal heat, hydropower, and solar power into electricity; and the methods we use to distribute electricity and fuels can all be made more efficient.

Generally, markets incentivize energy providers and users to maximize efficiency and thus lower cost to the consumer. But in some instances, the market does not deliver the most efficient products or services in the timeframe our strategic interests require.

It is also important to understand that decisions about energy efficiency are not made in a vacuum. Businesses, for example, typically look for investments that deliver the greatest return. Although investments in energy efficiency usually pay for themselves, they must compete and win against other investment opportunities, or they will not happen. Competitive pressures also can lead to products that are not as energy efficient as they could be. For example, a builder that designs and constructs a new residential or commercial building has a tremendous incentive to maximize investments in options that will visibly attract buyers and realize higher returns, but little incentive to invest in heating, cooling, and lighting systems whose efficiency is invisible and that are initially more expensive. After all, the tenant or homeowner, not the builder, will be the beneficiary of lower energy bills.

Residential and commercial buildings account for roughly 40% of U.S. energy consumption (this includes purchased electricity. Total primary energy consumption in the building sector is about 10% of total U.S. consumption). Most of this energy is used for space ventilation and air conditioning, water heating, lighting, refrigeration, cooking, and running a wide variety of appliances and equipment. In the near term, widespread adoption of advanced commercially available technologies can improve the efficiency of energy-using equipment in the primary functional areas of energy use.

The success of the voluntary ENERGY STAR® program demonstrates that when properly informed, consumers do value energy efficiency. More than 60% of U.S. consumers recognize the ENERGY STAR® brand.

The Energy Policy Act of 2005 (EPAct2005) and the Energy Independence and Security Act of 2007 (EISA2007) require new efficiency standards for a range of appliances and equipment. The U.S. Department of Energy (DOE) should move expeditiously to meet these requirements.

Advances in building envelopes, equipment and appliances, and integrated systems may make it possible to achieve a 70% reduction in a building’s energy use by 2025. With on-site energy technologies, such as solar photovoltaics, it is possible that many buildings could become self-sustaining and even net energy producers.

“Smart” building systems can integrate sensors, controls, and inputs from various building systems to inform an “energy management system” to optimize comfort and energy efficiency. Intelligent buildings can also communicate with the local utility to participate in peak shaving “demand-response” activities to substantially reduce the building owner’s energy bills. Congress, as well as state legislatures, can catalyze the move to smarter and more efficient use of electricity though targeted tax credits and by requiring improvements in their own buildings and facilities.

The use of fully integrated smart building technologies is more often the exception than the rule, and most of our buildings, as a consequence, deliver less than the sum of their parts. Why? Generally, it is the result of the building developer or owner focusing on “first cost” rather than “life cycle” costs. This should be addressed with new business models and lease structures that make energy efficiency improvements profitable for building developers, owners, and tenants alike.

Stronger building codes that are performance-based and easy to implement—rather than proscriptive and difficult to modify to fit local conditions and circumstances—also can make a difference. Building codes are the responsibility of state and local governments; however, national model codes are developed by code-setting organizations and certified by DOE, and states are required to consider these certified codes. DOE’s Building Energy Codes Program is working with national code organizations, the building industry, and state and local officials to develop and promote building codes that are 30% more energy efficient than the current national model. Legislation pending in the Congress would direct DOE to work with the code organizations to realize a 30% improvement in energy efficiency by 2010 and then a 50% improvement by 2020.

Industrial energy use is another area where there is huge potential for efficiency gains to reduce energy use. Industry accounts for about 32% of the energy consumed in the United States (This includes purchased electricity. Total primary energy consumption in the industrial sector is about 21% of total U.S. consumption.). There are significant differences in the patterns of energy use in the industrial sector. Industries such as metals, petroleum refining, chemicals, fertilizers, glass, pulp and paper, and cement are very energy intensive, while others, such as automobile manufacturing, appliances, electronics, textiles, and food and beverages, are much less so. About 80% of industrial energy use is related to the use of motors, steam, compressed air, pumps, fans, process heating, combustion, and combined heat and power.

Industries can take advantage of off-the-shelf technologies—many of which are common across a wide range of industries—and institute best practices and better energy management to save significant amounts of energy. Plant energy audits sponsored by the DOE’s Industrial Technology Program, for example, have been very successful in identifying ways to reduce energy use while improving productivity and recovering energy efficiency investments and saving money in an attractive timeframe. In the future, the industrial sector can adopt advanced technologies that could dramatically change basic manufacturing. These could include on-site energy generation, process efficiency improvements, advanced sensors and controls, and recovery and reuse of materials. The development and adoption of advanced industrial technologies can improve energy security while also helping to maintain the competitiveness of U.S. industry.

Electricity generation accounts for about 40% of total U.S. energy consumption and the power sector provides another example of an imperfect market. Because bulk electricity cannot easily be stored, the demand for electricity and the supply of electricity must be carefully balanced on a minute-to-minute, hour-by-hour basis. As utilities bring more-expensive, less-efficient generation on line to meet peaking demand, the cost of electricity generation can rise sharply. And yet, in most areas of the country, consumers pay flat rates for electricity. They are shielded from the true market signal and thus lack the incentive to curtail energy use during peak periods.

Consequently, we must explore innovative new regulatory models that reward efficiency, especially for utilities—and ultimately their customers—for saving electricity through energy efficiency programs and new approaches to the delivery of energy services. Moreover, utility regulatory policies that reward the more efficient use of generated electricity and natural gas must be encouraged.

Generally speaking, utilities are profitable when they sell electricity: if they sell less, they earn less. Electric companies are working with state regulators to transform the role of energy efficiency and to encourage them to treat investments in energy efficiency in essentially the same manner as investments for generation, transmission, and distribution. Many state legislatures and public utility commissions have recognized this reality and have implemented policies to remove this disincentive and to reward efficiency.

Such policies, which have had measurable success, include (1) cost recovery from the rate base for implementing efficiency programs or to compensate for lost marginal revenue that results, (2) separating fixed-cost revenue recovery from the volume of energy provided, and (3) creating financial incentives for efficiency investment by utilities. All states, through their legislatures and public utility commissions, should seek to embrace these examples and create other mechanisms that make demand reduction as profitable for utilities as increasing supply. Today’s twin challenges of reducing greenhouse gas (GHG) emissions while meeting the country’s steadily rising demand for electricity make the shift in focus essential.

Needless to say, we must also promote new technologies that use energy even more efficiently and “smart grid” technologies that allow consumers (and their residences and vehicles) to interact with the power grid to seize energy savings. Plug-in hybrid cars and light trucks that operate on electricity for much of their driving cycle might not only reduce oil consumption and improve air quality; but they could also provide a reserve source of electricity for their owner’s home, or provide power back to the grid during periods of exceptionally high demand, enhancing grid stability and reliability. Additionally, placing the generation source closer to end-users minimizes loss of electricity through the transmission process. However, the capacity of the current electricity grid must be expanded to support significant deployment of distributed generation systems.

There are still technological and economical barriers to overcome and standards to be established to leverage the most out of intelligent buildings, smart grids, and integrated plug-in hybrid cars and trucks. Perhaps the most daunting barriers, however, are the regulatory, institutional, and market barriers that exist at the local, state, regional, federal, and international levels. Therefore, the benefits and opportunities of energy efficiency must be broadly communicated and embraced at every level—from the White House and Congress, to Governors and state legislatures, to utility regulatory commissions, utilities, co-ops, and end users.

Leveraging policies, markets, and technology can yield tremendous benefits to promote energy efficiency, which is generally the fastest, least expensive method of helping to reconcile increasing demand for energy with increasingly constrained supplies, while reducing per capita emissions. This is the first priority.

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