Testimony of ACEEE’s Steven Nadel, Executive Director, on Energy Efficiency and the Enhanced Energy Security Act (S. 2747)

Key Drivers

Prices of heating oil, gasoline, natural gas, and coal have risen 60–100% in the past three years (varying by fuel), driven by rising demand, tight supplies, and limited transportation and processing infrastructure. While prices are unlikely to return to the levels of three years ago, prices can be reduced through a combination of reduced demand and increased supplies. However, new supplies take time to develop, so energy efficiency is the only near-term option. A 2005 ACEEE analysis found that reducing natural gas use by about 4% over five years could reduce natural gas prices by over 20%. Reducing demand for oil and for refined petroleum products is also likely to reduce prices.

U.S. reliance on oil imports continues to rise and is projected to be near 70% of total U.S. oil demand by 2020. A substantial portion of this oil comes from unstable regions of the world. While moderate amounts of new oil are available in hard-to-reach areas of the U.S., they are not enough to offset continuing rapid depletion of North American fields. Moreover, much greater amounts of oil are available by increasing the efficiency with which we use oil. A January 2006 ACEEE study finds that we can reduce U.S. oil use by more than 5 million barrels per day by 2020. That’s equivalent to almost doubling current U.S. oil production—which no serious petroleum expert views as possible. Improvements to passenger vehicles account for more than 3 million barrels per day of savings, but more than 2 million barrels per day of savings are available in the residential, commercial, and industrial sectors, and in heavy vehicles and airplanes. This suggests that oil-savings efforts should focus on all sectors, not just passenger vehicles. Greenhouse gas emissions, especially carbon dioxide, continue to increase. Early signs of the impact of global warming are becoming apparent in Alaska and other parts of the Artic, and several recent papers have identified a link between warmer ocean temperatures and increased hurricane intensity. Energy efficiency is the most cost-effective way to reduce these emissions, as efficiency investments generally pay for themselves with energy savings alone, providing no-cost emissions reductions. For example, a May 2006 ACEEE study found that the planned cap and trade system for power-sector carbon dioxide emissions in the northeastern U.S. can have a positive impact on the regional economy provided increased energy efficiency programs are a key part of implementation efforts.

Energy Policy Acts of 2005 and 1992

The Energy Policy Act of 2005 contained some useful energy efficiency provisions, particularly the new equipment efficiency standards and energy efficiency tax incentives. Other EPAct 2005 provisions may also help as well, but virtually all of these lack funding or other critical follow-up actions. Overall, ACEEE now estimates that the efficiency provisions in this law will reduce energy use in 2020 by 1.8 quadrillion Btu, which is 1.5% of projected national energy use. More than 75% of the savings are from equipment efficiency standards and efficiency tax incentives. Experience with the Energy Policy Act of 1992 showed a similar pattern—most of the savings came from a few provisions, and the majority of provisions proved to be more show than substance.

Key Priorities for New Legislation

Based on this past experience, we recommend that future legislative efforts focus on a few provisions that will result in substantial energy savings. We recommend four such provisions as follows:

• 1. Oil savings targets—S. 2747 sets oil savings targets that OMB and other agencies are tasked with meeting. This is a promising provision but needs to be backed by complementary actions that will make the targets enforceable, as well as authorize a variety of policies that OMB can choose among in order to meet the targets.
• 2. A national energy efficiency resource standard—An energy efficiency resource standard (EERS) consists of electric and/or gas energy savings targets for utilities, with flexibility to achieve the target through a market-based trading system. An EERS is similar to a renewable portfolio standard, but for energy efficiency savings instead of renewable energy generation. Policies along these lines have been adopted by eight states and several European countries. S. 2747 encourages states to consider EERSs but we recommend that this section be strengthened to establish a national EERS, with a national market-based trading system.
• 3. Equipment and appliance efficiency standards—Consensus efficiency standards were key successes in the last two Energy Policy Acts, and ACEEE is now working with industry and other stakeholders to negotiate additional consensus standards. We recommend that any consensus agreements that emerge be incorporated into legislation. In addition, ne legislation should authorize DOE to consider separate standards for the North and South for heating and cooling equipment. The current one standard for all approach means that there will be clear winners and losers that can be avoided by customizing standards for each climate zone.
• 4. Efficiency tax incentives—Provisions in EPAct 2005 generally expire at the end of 2007, largely because the 2005 conferees were under pressure to reduce the amounts spent on tax incentives. These should be extended, to at least the original expiration dates, and a few refinements should also be considered.

Energy Savings

ACEEE estimates that together these four items can reduce U.S. energy use by more than 14 quads in 2020, reducing energy use by about 12%. These savings would be more than seven times the efficiency savings of EPAct 2005.

Conclusion

We urge the Committee to concentrate on the largest opportunities for improving energy efficiency and take concrete action on legislation in these four key priority areas. Failure to take these steps now will make it much more likely that our nation’s energy problems will continue or even worsen, and that Congress and the nation will have to continue facing energy “crises” for many years to come.