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An efficiency portfolio standard is as important as a renewable standard — and should come first

By Joe Romm on December 27, 2008 at 2:17 pm

"An efficiency portfolio standard is as important as a renewable standard — and should come first"


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[A guest post by a federal employee with over 30 years experience in energy and the environment (see "Utility decoupling on steroids").]


Renewable Portfolio Standards (RPS) are the darling of energy and climate policy. Simple in concept, an RPS requires that a certain percentage of electricity supply come from renewable resources. Twenty-six states plus the district of Columbia have RPS requirements of one kind or another, and when it comes to federal energy and climate legislation, the one thing nearly everyone agrees on is the need for an RPS.

As usual, California is leading the pack with a goal getting 33% of their supply from renewables by 2020. Congress is considering a federal RPS between 10% and 15% by as early as 2015.

All fine and good, except for one thing – from a policy perspective, an RPS is the cart before the horse. The sizzle without the steak. The bark without the bite. The sound of one hand clapping. It’s the … oh you get the idea. It’s zen policy. Sexy, even necessary, but not sufficient, and certainly not the kind of coherent and systematic approach we need if we’re to avoid atmospheric levels of GHG in excess of 450 ppm and the hell on earth such a catastrophe would create.

What’s not to like about requiring that a certain percentage of our power come from clean, renewable energy?

Well, for starters, it’s only half a solution, and it’s the expensive half at that.
If we push renewable portfolio standards without also pushing even more aggressive efficiency portfolio standards (EEPS), we’ll end up chasing a goal that gets more difficult catch and more expensive to achieve with each passing year.

As Stuart Hemphill, a VP at Southern California Edison noted in a recent article in the New York Times, without EEPS, RPS targets grow as demand grows. The same article noted that since 2002 when California first established an RPS, there has been 16 times as much capacity installed using natural gas as there has been capacity from renewable energy.

On the other hand, if we establish an aggressive federal EEPS that must be met in the short term, we’ll make RPSs easier and cheaper to achieve; we’ll avoid the need for some transmission upgrades (but not all, by any means); we’ll lower the cost to consumers; and best of all, we’ll cut a heck of a lot more carbon, much sooner, and at a much lower cost.

And yet, EEPS are all but ignored in the drive to establish portfolio standards. A few states have incorporated anemic EEPS into their RPS legislation (Illinois, at 2% is one of the more aggressive) and federal legislation has been similarly weak in this regard.

In fact, it may well be that the best thing the Feds could do when it comes to an RPS is to let the states take the lead, and focus on an aggressive EEPS instead. The case is strong. States have different renewable resources and different reasons for enacting RPSs, and they have a substantial lead in many cases over what a federal RPS would add.

But the economically achievable energy efficiency potential is universal, substantial, and cheap. As ACEEE’s analyses have shown, states can avoid building new, centralized generation for a decade or more by taking advantage of cost-effective opportunities to meet capacity needs through efficiency, demand response and on-site generation.

If the federal government were to formulate an aggressive, escalating EEP, it would compliment state RPSs by making them easier and cheaper to achieve. It would also put teeth in the drive to decouple utility profits from generation, as well as the myriad other efforts to increase the efficiency of energy markets, which – with the exception of codes and standards — remain largely hortatory, voluntary, and ineffective.

The advantages of an EEPs strategy can be seen by looking at how it would effect the energy bill at an individual home. As the EEPs took effect, the grid would become more efficient, and the homeowner would use less energy; meanwhile, as RPSs took effect, the cost of a unit of energy would go up. With an EEPs-based policy, although the homeowner would be paying more for each kW, she’d be using fewer kWs overall, keeping monthly costs for energy relatively stable. What’s true for Joe and Jane homeowner would be true for the nation.

There are any number of ways to structure an EEPS. The most straightforward way would be to simply require that the nation get some per cent – say 50% — of new capacity from efficiency by a date certain. This could be a blunt instrument with a lot of hidden implementation issues.

A more precise method that allowed for variations within each state could work as follows. Congress would provide grants and require each state to identify the potential for cost-effective energy efficiency, demand response and on-site generation to displace the need for new centralized capacity.

The results of this analysis would be reviewed and certified by an expert team established by the Secretary of Energy. Once this was established, states would be required to take advantage of all demand side capacity before building any new capacity. If any state chose to allow construction of new generation before exploiting demand-side capacity, electricity from that source would charged a tariff to access the wholesale grid, equivalent to the difference in price between a negawatt and a watt.

Alternatively, Congress could simply ban construction of any new centralized generation from fossil fuels until all demand-side capacity was used up. Under either scenario, new capacity from renewable energy or fossil fuels with proven carbon capture and storage could be allowed.

[JR: We should ban all new coal without CCS in any event. We should not ban combined cycle natural gas.]

There are probably other and better ways of implementing a federal EEPS. But we’d better get busy and find them, or we’ll be chasing a retreating goal with our RPSs and losing the battle to cut carbon as we do.

There is, lurking beneath a federal RPS and EEPS policy, a rather giant elephant no one seems to want to acknowledge.

We’re trying to run a 21st Century national grid, with a 20th Century state-based regulatory system, and it won’t work. It’s tantamount to driving a Model T onto the bricks at the Indianapolis 500 and expecting to win. Increasingly, the opportunities to make our electrical system cleaner and more efficient require capacity to act and regulate at the regional and national scale, rather than at the state level.

A critical part of any successful climate and energy strategy requires us to reinvent the Federal Energy Regulatory Commission, and redefine the relationship between the states, regions and the federal government with regard to energy generation and distribution.

An intelligently designed federal EEPS could be the vehicle to begin that process.

[I would add that a McKinsey Global Institute report found that "Improving energy efficiency [could] offset some 85% of the projected incremental demand for electricity in 2030, largely negating the need for the incremental coal-fired power plants assumed in the government reference case(see McKinsey: Fighting climate change is affordable).]

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17 Responses to An efficiency portfolio standard is as important as a renewable standard — and should come first

  1. hapa says:

    this is not part of a “carbon neutral by 2030″ plan.

    1. “repower america” already includes agressive efficiency because it has to. to replace coal, and much petroleum for transport, we build lots of clean energy, and we need both the smart grid and the lower demand to make that work.

    2. the costs of fossil-energy on the utility bill are not the true costs. comparing kwh prices is old math.

    3. a key difference of the 21st century is that it is changing faster and more unpleasantly than any unimplemented 20th century plans can handle.

  2. hapa says:

    3.b. if you casually throw away a decade here, a decade there of equipment adjustment, you’re not paying attention.

  3. John Mashey says:

    1) Fortunately, I think our forthcoming Secretary of Energy gets this :-)

    2) And in any case, efficiency upgrades to infrastructure ought to be a useful portion of the TBD economic stimulation plan, as:

    a) As a distributed effort, it can be spread widely across the country, which is politically good.

    b) There are many smaller efforts, which means that they can be relatively quicker to get going.

    For instance: efficiency upgrades to schools and other public buildings that might need work anyway.

    c) And finally, the construction business is likely to be in bad shape for a while, and this sort of effort can *usefully* absorb much effort in that industry. I’ve talked with construction guys turned solar installers [from SolarCity] and they’ve seemed like relatively happy campers.

  4. Charlie says:

    Just submitted to digg–to help it along click on “digg” just below “related posts”.

  5. David B. Benson says:

    Joe Romm — Guest posts ought to prominently display the name of the writer.

    Thank you.

  6. Harold Pierce Jr says:

    Hey Joe!

    What do your “wonk ee friends” say about energy efficency?

    Attn: hapa

    Your are not going to replace hydrocarbon tranportation fuels with any other materials. For example, boats, planes, trains, freight trucks, intercity
    buses, cars and light trucks with spirit and muscle (i.e., V-8 engines), motorcycles, etc as well as heavy machinery used in construction, mining, agriculture, forestry, and in particular Diesel-electric generating systems will always require and use hydrocarbon fuels prepared from oil becasue these fuels have high energy density.

    More imporantly, oil exists free in Nature and these fuels are prepared primarily by fractional distillation and blending, low energy processes that do not reqire the breaking of chemical bonds. Even catalytic cracking of heavy oil fractions to lighter hydrocarbons in the gasoline range is a low energy process.

    Hydrocarbon fuels are chemically inert, except to reaction with oxygen and a few other highly reactive chemicals, and have low solvent power which reduces the material cost for fuel storage and delivery systems. These fuels are highly portable and can be be stored indefinitely in sealed containers and in tanks under an inert atmosphere. Gasoline can be used over large range of air temperature e.g., from -40 deg to +40 deg C.

  7. hapa says:

    harold: i said we’d electrify much or most of transportation — sometimes by sector and sometimes by vehicle and sometimes by mile — and that’s what i meant. you can imagine that i said “every mile of every mode” if you want. i give you permission.

  8. Harold Pierce Jr says:

    Sorry, it ain’t ever going to happen especially for boats, planes and trains.

  9. You’re right, we’re REALLY GOING WRONG by not focusing enough on efficiency. For instance, New Jersey’s Draft Global Warming Response Act Recommendation Report doesn’t do nearly enough with efficiency. FORTUNATELY, we’re entering the public comment period, with meetings from Jan 6-16 in Trenton. Hope to see you there. A short blog post summarizing the issue is here: http://www.greenpoliticsnj.com/2008/12/nj-global-warming-sharpen-our-response.html

  10. hapa says:

    harold: everybody here would really enjoy if you would just one time say, “there’s no such thing as an electric train.” after that, maybe you could devote your life to inventing a new background story for the phrase “third rail.”

  11. hapa says:

    there are also such things as electric boats, aside from the nuclear ones that named the famous industrial group. they are hybrid cargo ships with sails (generating electricity with wind pull), solar, even wave energy capture. again, this is about reducing the fuel used; switching to a cleaner fuel mix is not impossible. reducing redundant shipping is easy, too.

  12. walle says:

    This is an interesting concept. To make this work, you need a constituency to drive it (e.g., industry) – that’s just politics. Then, you would have to figure out how to slice the pie – commercial, residential, municipal, federal, etc. I like where this could go…



  13. Harold Pierce Jr says:

    Attn: hapa

    The reason Diesel engines are used extenstively in industry and commerce for transportation is that these engines have high thermal efficiency. A modern Diesel engine has a thermal efficiency of 50% and this is highest of all thermal engines. A coal-fired power plant has a maximum thermal efficiency of 40%, and nuclear power plants have thermal efficiency of only 30-35%.

    Electric trains are fine for dedicated passenger service, but not for hauling freight because electricity is too expensive. Overhead electrical sevice lines would not be able to supply the enough power for long freight trains (more than 100 cars) especially for those that have to go over mountains like the Rockies. In the Canadian Rockies, snow and rock slides are not uncommon and would take down the lines, and traffic would come to a stand still.

  14. David B. Benson says:

    Harold Pierce Jr — Just to the south of there, in Idaho and Washington State, it used to be that the railroads were electrified, to go over the mountains.

    Regenerative braking.

    All trains, freight and passenger.

  15. Kerry O'Neill says:

    Energy Efficiency Portfolio Standards are an important tool in the national toolbox: they will drive widespread adoption of energy efficiency behaviors and technologies in the market with all the attendant benefits (energy usage reductions, $ savings, positive environmental benefits). How best to implement these standards? The author mentions a few states that have incorporated anemic EEPS into their RPS legislation.

    I would also point to what’s going on in Connecticut. It adopted a mandatory EEPS target of 1% in 2007, 2% in 2008, 3% in 2009 and 4% in 2010, with a compliance payment of $31/MWh and the creation of a market for trading energy savings certificates. Currently, the market is trading around $20-25. Just recently, CT’s market for energy savings certificates was opened up to the residential market if at least 100 kWh is aggregated (see CT DPUC Docket No. 05-07-19RE01). This market is attracting increasing private sector activity.

    I would argue that:
    (1) A market-based approach to an EEPS can work
    (2) There needs to be transparency and liquidity in the market (CT is working on this, as a new market, it does not yet have the kind of transparency or liquidity you see in more mature markets and that are required to attract large private sector investors)
    (3) High quality measurement & verification is essential in a market approach – investors want to know they are investing in high quality projects and regulators need to know the projects are delivery the goods
    (4) The residential sector presents many significant opportunities for aggregation, and a market-based approach to EEPS offers this challenging sector a new vehicle to finance large scale residential projects
    (5) Combining an EEPS with an RPS is an effective way to have one help pay for the other, and to ensure that an RPS doesn’t unintentionally contribute to an increase in energy consumption

    Connecticut provides an interesting model that is worth a closer look. As to results and performance, it’s too early to tell – but in a year or two we’ll all have data to look at.

  16. Federico Fische says:

    Al nice and dandy, but without no long term policy no ideal solution. So what we should be pushing for first? Let us take the case of the clean air act or the clean water acts, and their ups and downs. The CFR 40 (Environment, which include the mentioned acts) define standards, that usually are role-up under Democratic administrations and role-back under Republican administrations, that are the law. You have define standards, benchmarks and acceptable methodologies to assess who is in compliance and who is not. Such national framework becomes the baseline for the States and Municipalities, and present them with the challenge to match an improve. We can have a section in the Code for Renewable Energy, which should tie with other regulations, with its own baseline for EEPS and/or on how you develop an RPS. Two direct effects: (1) provides States and Municipalities with a baseline and (2) gives the private sector a regulatory piece that is critical to their decision making process and the sustainability of any business venture. For that, we need the involvement of all stakeholders for a comprehensive policy vision, goal and framework for renewable energy in the US.

    A note on the efficiency issue: looking back to renewable energy statistics at the International Energy Agency, you find that a significant contribution of energy efficiency to the ratio of renewable energy generated. On the other hand, energy efficiency is limited it can go as far as you can improve systems and processes through the energy life cycle (generation, distribution and consumption). Energy efficiency is a short term game, once we all work within the standard, we face the real challenge: a sustainable renewable energy based society.

  17. msn nickleri says:

    Connecticut provides an interesting model that is worth a closer look. As to results and performance, it’s too early to tell – but in a year or two we’ll all have data to look at.