Life Without Building Block 4

Deck: 

Energy Efficiency under EPA’s Final Clean Power Plan.

Fortnightly Magazine - October 2015

Supporters and opponents alike will stake their claims about the final Clean Power Plan (CPP), announced by the U.S. Environmental Protection Agency this past August. Yet, when all the political issues are stripped away, energy efficiency (EE) remains the most cost-effective route to compliance. It continues to yield benefits for existing power plant owners, consumers, the environment, and the overall economy.

Known among policy experts as EPA's 111(d) rule, the CPP is designed to reduce carbon dioxide (CO2) emissions from existing fossil-fired electric-generating units (EGUs) with a capacity greater than 25 megawatts. The CPP will be implemented through state-based compliance plans. And while each state's emission reduction target varies according to its resource mix and other factors, the CPP is designed to achieve nationwide CO2 emission reductions totaling 32 percent by 2030, relative to a 2005 baseline.

In the CPP draft rule issued in June 2014, EPA built up state emission reduction targets through four key "building blocks" as part of an emissions reduction strategy:

  • Heat Rates. Improving the average generation efficiency, or "heat rate," for coal-fired electric generating units (EGUs) with steam turbines.
  • Redispatch. Shifting dispatch of power system resources to existing and under-construction natural gas combined-cycle (NGCC) units.
  • Renewables & Nuclear. Greater utilization of zero- and low-emitting power sources, by increasing dispatch of new, cleaner generation, through deployment of new resources employing renewable energy, plus new and existing nuclear generation under construction.
  • Energy Efficiency. Increasing the energy-saving impacts of demand-side energy efficiency programs.

In the final rule issued August 3 of this year, EPA narrowed the building block base, and did not include EE in the calculations used to develop state targets. However, EPA and the White House have made it abundantly clear that energy efficiency remains just as viable a compliance option as before. Experts have opined that EPA's move in the final rule was legally motivated. Because EE occurs "outside the fence" of affected generating units, its inclusion as one of the four building blocks would expand the legal framework of the rule and thus could increase the risk of court challenges. EPA apparently wanted to limit legal challenges by keeping its basis for the final rule "inside the fence" as much as possible.

It is important to understand the difference between a "building block" and a compliance option. The building blocks were calculation methods used to project reasonable emission reduction targets; but compliance options are not limited to any of these building blocks. The bottom line is that while efficiency is not a building block in the final rule, it is fully viable as a compliance option.

The final rule also creates a new EE program opportunity through EPA's proposed Clean Energy Incentive Program (CEIP), which would encourage ramped-up deployment of low-income EE programs and renewable energy programs in the two years leading up to 2022, the first compliance year. The CEIP concept has not been finalized, but it does represent an extra vote of confidence from EPA in EE as a CPP compliance resource.

The Lowest Cost

EPA's view on CPP compliance has been and remains very flexible, recognizing the fact that states not only produce and consume electricity in different ways, their energy and environmental policies and programs also vary significantly. For example, 47 states have utilities that run demand-side EE programs, 38 states have renewable portfolio standards or goals, and 10 states have market-based greenhouse gas programs.

In addition to flexibility in terms of compliance, states will have individual CPP CO2 reduction goals. According to Bill Prindle, vice president at ICF International, "Each state's compliance strategy will vary based on its assessment of available options and relative compliance costs. But ample data already exists to show that energy efficiency is typically the lowest-cost compliance option; the Regional Greenhouse Gas Initiative (RGGI) states recognized this ten years ago, and built efficiency into their program as a key complementary policy. Because states' historical experience with energy efficiency is all across the board, the relative role of efficiency in states' CPP plans will differ both in total magnitude and total contribution to the compliance strategy."

Prindle expounded on this theme in his article, "Will the Clean Power Plan Move the Needle on Energy Efficiency," which was published in AESP's 25th Anniversary Magazine, June 2015: "The EPA's analysis in setting states' CPP goals took into account the current and expected availability of resources in each building block, which included varying assumptions about current and projected efficiency program impacts."

Following the August 3 release of the final rule, Prindle added "Even though EE was not used as a formal building block for the final rule, every indication is that EE is still very much in the game as a compliance option. It's economic and other benefits haven't changed, and the EPA recognizes that."

That said, and recognizing that states have diverse energy generation and consumption patterns, energy efficiency should remain as a key component of most states' CPP compliance plans. Conversely, the CPP presents a new opportunity to leverage energy efficiency, make it more mainstream and leverage its power as an economic engine.

But wait, there's more.

In the recent article, Energy Efficiency and the Clean Power Plan - A Retail Focus, by Navigant's Frank Stern, Rob Neumann, and David Purcell (originally published in the Association of Energy Services Professionals magazine, Strategies), the authors explain further how EE as a compliance option offers a number of benefits, including some that may not be obvious at first glance:

  • Least-Cost. EE is typically a least-cost resource for reducing carbon emissions, especially when compared with other CPP compliance choices.
  • Secondary Benefits. EE provides positive economic benefits, while reducing carbon emissions; many other options impose only economic costs.
  • A Lower Baseline. EE will decrease energy demand allowing utilities greater supply-side flexibility to implement other building blocks through 2029.
  • Less 'Lumpy.' EE programs can be adjusted with changing energy conditions, as compared to an installed plant that is capital-intensive and cannot be altered quickly with changes in market conditions.

Untapped Savings

As Stern, Neumann, and Purcell point out, "states with larger utility EE portfolios and growing programs are more likely to meet CPP efficiency goals than states with low annual savings rates and less-developed EE programs."

It's true that states with existing energy efficiency efforts will likely be able to ramp up activities easier and faster than those without. But you look also at the opportunities. If there hasn't been much energy efficiency work done in a specific state, there could be opportunities to save that have never been explored - a virtual gold mine of savings.

While some EE can look expensive on a first-year basis, power planners and regulators know that customers' bills will be lower on average over the longer-term. EE can also go a long way toward meeting the CPP's broader goals, since the greenest kilowatt hour of energy is the one that is never consumed, and therefore never produced.

Cadmus, an environmental consulting firm, points out two additional considerations for using EE as a compliance mechanism.

First, the EE community already can provide a consistent yardstick for measuring compliance impacts, giving states a leg up on verification requirements. Consider that the EPA will require state plans to include quantification, monitoring, and verification protocols for renewable energy and energy-efficiency measures, and intends to develop guidance for the evaluation, measurement, and verification (EM&V) of these measures. But EE programs already have built EM&V into a multi-billion dollar industry. States new to this world won't have to start from scratch. Many states already have efforts underway in this area. States without these systems in place, or who are new to the process, will have the other state models from which to learn.

Second, the EE industry already is already far down the road on portfolio design. When developing plans, according to Cadmus, states should consider the various portfolio designs for energy-efficiency programs that are currently in use by many utilities and statewide-sponsored portfolio implementers. Energy efficiency portfolios traditionally are structured around kilowatt hours (kWh), kilowatts (kW), and therm energy savings. However, if energy efficiency programs become an approved compliance method for meeting 111(d) state carbon emissions reduction targets, states will need to carefully consider portfolio program design aspects, such as measure selection, in order to meet both carbon and energy reduction targets.

As Prindle has noted, the CPP final rule already indicates that states will be allowed to credit EE impacts under existing policies and programs that have been authorized prior to the plan's compliance period, as long as the impacts are measured within the compliance period.

A Coal-Neutral Option

Those with a vested interest in the coal industry have decried the Clean Power Plan as a "war on coal."

Thus, in its response to the rule, the American Coal Council said that, "the (Obama) administration's latest move to force carbon dioxide restrictions on existing electric generating plants is another unfortunate chapter in the push to restrict the use of coal in America.... numerous economic and energy experts have demonstrated the detrimental impacts of policies aimed at reducing coal use. For example, a recent IHS study for the U.S. Chamber of Commerce predicts that EPA CO2 rules will cause the loss of 224,000 jobs annually, increase electricity costs by $289 billion, and lower household incomes by over $500 billion."

In May 2015, West Virginia Attorney General Patrick Morrisey testified against the bill before a clean air subcommittee of the Senate Environment Committee:

"Make no mistake about it: finalizing this proposal would have a devastating impact on my state, other coal-producing states, and citizens from across the country [that] will feel the impact of high electricity prices and reduced reliability of the power grid."

Oklahoma and West Virginia are among 15 coal-reliant states that are suing the EPA to stop the rule from moving forward. And, West Virginia Senator Shelley Moore Capito has joined with a number of other U.S. Senators in introducing a bill that would significantly scale back provisions in the CPP.

However, a balanced analysis reveals that the CPP, and the opportunity it creates to focus on energy efficiency specifically, may in fact be supportive of traditional as well as new sources of energy.

Prindle has said that the CPP in itself may have only a modest impact on coal retirements. "Increasing EE impacts in CPP compliance can help minimize coal retirements by increasing dispatch and resource mix flexibility," he said. "ICF's earlier analyses of U.S. power markets have shown for some time that market forces, especially cheap gas, and regulatory actions such as other environmental rules are already driving tens of GW of coal capacity off the market."

"The so-called war on coal gets injected into everything EPA does," said Ralph Cavanagh, energy program co-director for the Natural Resources Defense Council, adding that the EPA expects that coal will remain at least 30 percent of electricity generation through 2030.

The Center for Climate and Energy Solutions has also noted EE's coal neutrality as a CPP compliance option. In a report entitled "Modeling EPA's Clean Power Plan: Insights for Cost-Effective Implementation," the Center noted that deploying energy efficiency to bring down emissions rates "allows for the pursuit of the target with minimal change to the existing mix of coal and natural gas on the grid." The report adds that when energy efficiency is employed effectively, coal-based generation has maintained existing levels.

In addition, according to a recent article in The Washington Post, "wherever electricity comes from under the (CPP) - whether coal, natural gas or renewables - we'll be giving off less greenhouse gas emissions simply because we'll be using less of it in total ... Not only is energy efficiency arguably less controversial than cutting down on coal use, it also saves everybody money on their energy bills - a projected 8 percent by 2030 under the Clean Power Plan, according to the EPA."

"After all," the article continued, "if more homes are weatherized, if they contain more energy-efficient appliances and smarter thermostats, if buildings are constructed more sustainably, then there will be less overall electricity required for powering our daily lives."

And our current resources will be more than adequate.

Friendly to Growth

All this leads to the fact that the CPP has the potential to increase the focus on EE, which in turn will support positive effects in the overall economy.

"Clean energy progress goes hand in hand with economic health, and America's success in linking them is encouraging efforts worldwide to stabilize atmospheric concentrations of greenhouse gases," Cavanagh said in a November 2014 New York Times op-ed. "Improvements in energy efficiency over the last 40 years have done more to meet growth in America's energy needs than the combined contributions of oil, coal, natural gas and nuclear power."

And, when adjusted for economic growth and inflation, the United States has cut its energy needs by more than 50 percent since 1973, and the trend shows no signs of slowing, according to America's Energy Resurgence, a February 2013 report from the Bipartisan Policy Center's Strategic Energy Policy Initiative. But there is an opportunity to do more, and the work will yield positive results.

The energy efficiency industry is ready, willing, and able to offer solutions to meeting the CPP mandates. Energy efficiency should be at the top of the list for states to utilize in complying with CPP mandates. Given the opportunity, energy efficiency might just become a 40-year-old overnight sensation.