Testimony of Steven Nadel, Executive Director, to the House Energy and Commerce Committee on the Critical Role that Energy Efficiency Should Play in National Energy Policy

Energy efficiency is an important cornerstone for America=s energy policy. Energy efficiency has saved consumers and businesses trillions of dollars in the past two decades, including more than half a trillion dollars in 2004 alone. These efforts should now be accelerated in order to:

• $ Save consumers and businesses even more money;
• $ Change the energy supply and demand balance and put downward pressure on energy prices;
• $ Decrease reliance on imported oil;
• $ Help with economic development (since savings from energy efficiency generates jobs);
• $ Reduce carbon emissions, helping to moderate growth in the gases that contribute to global climate change.

A recent ACEEE analysis found that gas markets are so tight that if we can reduce gas demand by as little as 4% over the next five years, we can reduce wholesale natural gas prices more than 20%. These savings would put over $100 billion back into the U.S. economy. Moreover, this investment would help bring back U.S. manufacturing jobs that have been lost to high gas prices, and would help relieve the crushing burden of natural gas costs experienced by many households, including low-income households. Importantly, much of the gas savings in our analysis come from electricity efficiency measures, because so much electricity is generated by natural gas, often inefficiently.

Likewise, U.S. reliance on oil imports continues to rise and is now above 60% of total U.S. oil demand. A substantial portion of this oil comes from unstable regions of the world. The U.S. Energy Information Administration estimates that imports will account for over 70% of U.S. oil use in 2020 unless current trends are changed. While moderate amounts of new oil are available in hard-to-reach areas of the U.S., much greater amounts of oil are available by increasing the efficiency with which we use oil. Forthcoming analyses by ACEEE and others estimate we can reduce U.S. oil use by more than 2.5 million barrels per day by 2020 through improvements in the residential, commercial, industrial and transportation sectors (the latter including passenger cars, light and heavy trucks, and planes).

The provisions in the draft Energy Policy Act of 2005 (which we assume are virtually identical to the H.R. 6 Conference Language from 2003) take moderate steps to address natural gas and electricity use but do very little to stem oil use. Notable efficiency provisions in this Act include:

• o Enactment of consensus equipment efficiency standards on six products plus DOE rulemakings to set efficiency standards on six more products. These standards were negotiated by ACEEE and industry over the 2001-2003 period.
• o Tax incentives for advanced energy saving products and buildings including combined heat and power systems, appliances, hybrid, fuel cell and advanced diesel vehicles, and new and existing homes and commercial buildings.
• o Enhancements to the appliance labeling program, the Federal Energy Management Program and to programs that seek voluntary efficiency commitments from industrial firms.
• o Updated authorizations for advanced energy research, including energy efficiency.

We support these provisions, although we believe some of the tax incentive provisions should be refined to produce more energy savings per dollar of tax incentive provided. Taken together, in 2003, we estimated that these provisions will reduce U.S. energy use by about 1.5% over the 2004-2020 period, including approximately a 3% reduction in 2020. By 2020 we estimated that these provisions will also displace the need for nearly 300 new power plants of 300 MW each. We are now in the process of revising our savings estimates and expect to have updated figures within a month.

However, more can and should be done to improve U.S. energy efficiency. We recommend that the following be added to the bill, either before it passes the House or in conference:

• $ Adding new consensus efficiency standards on commercial air conditioning and refrigeration systems, ceiling fans, dehumidifiers, and restaurant spray valves based on consensus agreements we have negotiated with industry.
• $ Adding additional consensus efficiency standards if negotiations now underway for four additional products can be successfully completed.
• $ Clarifying that DOE can set separate furnace efficiency standards for cold and warm states—the U.S. climate is varied enough that dividing the country into two zones can result in substantial energy and economic savings not possible when the same standard applies in Florida and Alaska.
• $ Including an Energy Efficiency Resource Standard to set energy saving targets for gas and electric utilities, modeled after Texas legislation signed by then-Governor Bush.
• $ Setting a fuel-savings goal of 1 million barrels per day of oil savings by 2013 and authorizing additional tools for achieving these savings such as fuel-economy testing for heavy trucks and "feebates" for passenger vehicles (a revenue-neutral system of fees and rebates based on fuel economy), and modification of passenger vehicle test procedures to better match real-world performance.
• $ Addressing barriers to combined heat and power systems by directing FERC and EPA to complete current proceedings on interconnection and output-based emissions permitting.
• $ Refining proposed energy efficiency tax incentives in order to better promote advanced equipment and practices, increasing savings while having little or no impact on costs.

These additional provisions would increase energy savings under the bill about fourfold. Failure to take these steps now will make it much more likely that our nation's energy problems will continue and that Congress will have to again address energy issues in the not very distant future.