Climate Policy. States are setting increasingly aggressive carbon emissions reduction targets, putting pressure on the new Congress to take significant action on a national climate policy.

• California's AB 32 created the most aggressive carbon emission reduction targets in the U.S.—reducing emissions to 1990 levels by 2020. While key details remain to be defined by the California Air Resources Board, indications are that the electric-power sector portion of the rules will place the carbon cap on distribution utilities, not on power plants. This "load-side" cap is an important departure from the traditional power plant cap approach, because it directly encourages utility investment in energy efficiency investment. When the cap is placed on generators, end-use efficiency gains are treated as "indirect" emission reductions as they don't directly result in emission reductions.
• Oregon is about to announce a similar power-sector carbon-cap policy, with the cap placed on distribution utilities.
• On December 1, four states (CA, OR, NM, and WA) signed the Western Public Utility Commissions' Joint Action Framework On Climate Change; the first action item is to pursue stronger commitments to energy efficiency.
• Back east, states in the Regional Greenhouse Gas Initiative (RGGI) began to implement the Model Rule finalized in August. New York announced its commitment to auction 100% of its carbon allowances, with a good chance that most of the resulting funds would support additional efficiency investment. Vermont was the first state to commit to a 100% public-benefit auction approach, and indications are that states like Connecticut and New Jersey may follow suit, potentially generating significant new funds for efficiency programs. Meanwhile, Massachusetts and Maryland are poised to join RGGI in 2007.
• For more information, read ACEEE's report on the RGGI program, as well as our broader assessment of energy efficiency's role in cap-and-trade emissions policies.

Energy Efficiency Resource Standards. States continue to set and increase energy savings targets for utilities as Congress' new leadership prepares to more seriously consider a national EERS in 2007.

• Connecticut's efficiency standard takes effect beginning in 2007, requiring utilities to achieve savings equal to at least 1% of electricity sales, building up to 4% of sales by 2010. This "Tier 3" standard, added to the state's renewable portfolio standard by the legislature in 2005, can be met through customer energy efficiency or combined heat and power (CHP) resources. A market is already evolving for "white tags" credits that can be sold to utilities for compliance with the standard.
• Texas' first-in-the-nation EERS, passed in the 1999 restructuring legislation, is up for review and possible increase in the state's upcoming legislative session. Utilities have easily exceeded the initial 10%-of-load-growth target, and options include raising the target to as much as 50% of load growth. ACEEE is conducting a major new efficiency potential study, which could help support a higher EERS target. Concerns over new coal plant siting applications are adding to the interest in this study, to the extent it could defer the need for some of those plants.
• Emerging EERS commitments are on the watch list in New Jersey, Massachusetts, Illinois, and Washington.
• For more information on EERs, read ACEEE's report on U.S. state and European national policies.

New Utility Efficiency Initiatives. The USEPA/DOE-sponsored National Action Plan for Energy Efficiency, issued in July 2006, is already supporting new efforts in several states. A wave of new coal-fired power plant permit applications is also raising concerns in many states. Leading examples include:

• North Carolina's utility commission is updating its Integrated Resource Planning process to better encourage utility investment in efficiency resources. Efficiency potential studies were commissioned by the commission and by Duke Energy, which will help a working group process identify best program prospects.
• Florida is the subject of another new ACEEE efficiency potential study in 2007, which could lead to a new set of utility efficiency commitments. A new administration, chronic natural gas supply constraints for power generation, and concerns about new coal plant applications are helping build support for this effort.
• Pennsylvania's utility commission is pursuing a new docket on demand-side resources, including investigations into best-practice efficiency programs and ratemaking reforms like decoupling of sales and utility revenues.