October, 2007
Preview Issue (October 2007)
How to design a cap-and-trade program that values Energy Efficiency?
With energy efficiency the lowest-cost way to avoid significant tons of generation from coal and other fossil fuels, the U.S. needs to design a cap-and-trade program that recognizes the value of EE, said Richard Cowart, Director of the Regulatory Assistance Project during during an EE teleconference Oct. 17.
"EE is the lowest-cost way to avoid significant tons of carbon emissions from generation in the power sector. A lot of things that capture the public's imagination cost more than EE. How do we design a cap-and-trade program so its calls for EE?" he asked. He was speaking during a teleconference, "What's New in Energy Efficiency: Regulatory, Market and Policy Measures," hosted by the law firm Stoel Rives, Portland, Ore.
The traditional approach to cap-and-trade--the acid rain program--is not the best model for reducing carbon emissions in the power sector, said Cowart.
"In the power sector, the best low-cost solutions are not at smokestacks. We don’t have the option of substituting high-sulfur with low-sulfur. We don’t have a source of low-carbon coal or natural gas," he said.
"The general thinking is all we have to do is auction carbon credits and put them in the hands of generators and run the program the way we did with acid rain," Cowart said. "But the problem is you end up with significant windfall gains to generators if you do that."
The free allocation of credits to generators would result in generators' raising their bid prices in wholesale markets. Wholesale prices would rise, and ratepayers would end up paying premiums to reflect that carbon costs are reflected in the cost of power, he explained.
In this scenario, carbon generators would reap significant windfalls, he said.
U.S. Under-invested in EE, Says EPA Official
With studies showing that the U.S. could meet up to 50% of its load growth with energy efficiency--at half the cost of building new power plants--the nation is underinvested in EE, said Kathleen Hogan, Director of the Climate Protection Partnerships Division for the U.S. Environmental Protection Agency during the EE teleconference, "What's New in Energy Efficiency: Regulatory, Market and Policy Measures" held Oct.17.
"We’re not spending enough currently to go out and get what’s out there. There’s good information out there about how to run the programs needed to capture energy at half the price of building new power plants," said Hogan, as she summarized the findings to date of the EPA/DOE-sponsored National Action Plan for Energy Efficiency.
Utilities are well-positioned to create and deliver EE programs, she said. But they often don't have enough incentive to invest in EE. "If they save energy, they reduce their profit. That’s a disincentive. That’s a big issue that has to be addressed," she said. Right now, the EPA is focusing on ways to address that disincentive, she said.
Some states are moving aggressively toward boosting their EE programs, she noted. Minnesota's Next Generation Act of 2007, a climate change program, sets an aggressive target for boosting supplies of energy efficiency. It calls for increasing the amount of energy saved in the use of electricity and natural gas by 1.5 percent a year in order to reach 25 percent savings by 2025.
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