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A Business Case: Energy Efficiency in the New Environment

Investments in energy efficiency can be a growing revenue source. Strong programs, in conjunction with effective monitoring and verification, are the keys to success.

Fortnightly Magazine - December 2006

Public and political interest in global climate change and greenhouse-gas (GHG) emissions is increasing every month. While the market mechanisms for “carbon trading” (referring to carbon monoxide and other GHGs) still are being developed, energy efficiency undoubtedly will play a large role in helping to produce the tons of GHG emissions units that will be traded. Carbon credits or tons of CO 2 that have been reduced on the part of a company now have a value that can be traded between those who have the asset and those who need it. That means that both utilities and their major industrial customers will be seeking ways to demonstrate GHG reductions, and energy efficiency will be one of those ways.

An increasing number of opinion leaders and media outlets agree with the majority of scientists that climate change is linked to GHG emissions and that whatever the strength of that link or the ability of societies to have an effect on climate change, energy efficiency is worth pursuing. Energy use causes the bulk of GHG emissions, making energy efficiency a natural and cost-effective first step for any GHG emissions-reduction strategy.

In a growing number of states, politicians are responding to public and scientific concern about climate change and global warming by developing policies specifically relating to reduction of greenhouse gases. The move to reduce greenhouse gases is dominated by targeting carbon emissions, with a new market for carbon credits associated with units of GHG reductions (expressed in tons of CO 2 equivalent). Utilities are operating in more and more states that have such legislation or regulations in place to address environmental policy goals. In New England, the Regional Greenhouse Gas Initiative (RGGI, or “Reggie”) is leading the way toward setting up a coordinated system for its member states (see Figure 1) .

Foremost among them is the landmark Assembly Bill 32 in California, passed in September 2006, which follows on an agreement between Gov. Arnold Schwarzenegger and Britain’s Prime Minister, Tony Blair, to advance the development and introduction of environmentally friendly technologies and mechanisms. The objective is to address the increasing evidence of the negative effects of climate change. The bill attempts to bring California up to speed with the Kyoto Protocol countries by putting a cap on GHG emissions. The power sector and major industries will be required to reduce emissions to 1990 levels by 2010, meaning a reduction in current GHG emissions by 25 percent. Consequently, there is a scramble to identify all cost-effective short- and long-term energy efficiency in the state. 3

Capacity Markets

As if the advent of public-benefits funds and carbon cap-and-trade systems was not enough, the screaming need for new capacity in high-demand regions of the United States is adding a third driver: the development of capacity credits for non-traditional energy sources. Electricity capacity constraints and an aging transmission and distribution infrastructure are the result of decades of industry inaction regarding new generation. Some industry leaders are beginning to warn of an imminent energy crisis, and experiences in New York and California this past year underscore the urgency