Energy efficiency: still the building block for cost-effective Clean Power Plan compliance

Increasing efforts to save energy in homes and businesses will be critical for power plant owners and states that want to comply with the landmark Clean Power Plan in a cost-effective manner. In earlier analysis, NRDC found that ramping up energy saving efforts to the levels demonstrated in leading states significantly reduces compliance costs.

One change between the proposed version of the rule, released by the Environmental Protection Agency in summer 2014, and the final version, released Monday, was the removal of energy efficiency as a "building block." The emissions-reducing impact of energy efficiency programs was not factored into final power plant carbon pollution limits.

While I could imagine some in the efficiency community disagreeing with EPA's removal, more important than what the agency didn't include is what it did: the agency announced a new program that gives early action credit for energy efficiency programs in low income communities, and EPA detailed the process states and power plant owners must use if they employ energy efficiency to reduce power plant emissions.

Saving energy in low income communities

The Clean Energy Incentive Program will give bonus emission reduction credits to programs that increase energy efficiency in low income communities, whose residents bear a large portion of the pollution burden from fossil fuel-fired power plants. Moreover, low income communities have in the past not received enough attention from utility energy efficiency programs. Under the optional program, energy efficiency programs in low income communities will get double credit for energy savings that occur in 2020 and 2021. These credits will be valuable to power plant owners during the 2022-2030 compliance period, providing a much-needed funding stream for these programs. Some details still need to be worked out, and we will be commenting to EPA on this exciting program.

Start now, or yesterday

The final rule gives states considerable flexibility to design a state plan that reflects their unique circumstances, but regardless of their choices, states, power plant owners, and energy efficiency providers should start increasing efforts to save energy, now. Why? Because anything installed between now and 2030 that is still saving energy in the 2022-2030 compliance period will help power plants cost-effectively meet their carbon pollution limits.

Accounting for energy efficiency in a mass-based plan is easy

If a state chooses a mass-based plan, as the state increases efforts to save energy, it will not have to do anything additional to account for the impact of energy efficiency programs. Instead, the impact of energy efficiency will be felt at its fossil fuel-fired power plants: they will operate less and less carbon pollution will go up the smokestack.

In a rate-based plan, states build on existing processes to account for energy efficiency

If a state chooses a rate-based plan - where fossil fuel-fired power plants have to decrease the amount of carbon pollution that comes out of the smokestack for each unit of energy produced - accounting for energy efficiency will be very important. While total emissions in the state will decline as a result of energy efficiency programs as plants operate less, just like under a mass-based plan, the emissions rate of the power plant will remain unchanged. To invoke another energy sector analogy: even if you drive less, your car's fuel consumption rate - its miles per-gallon - will not change much.

Accounting for energy efficiency in a rate-based plan means producing emission reduction credits that power plant owners use to account for the pollution-free energy provided by energy efficiency. To do this:

  • Energy efficiency providers must estimate energy savings using credible methods and employ credible professionals to estimate savings.
  • States will then review savings estimates, determine the number of emission reduction credits that should be issued for a project, and issue the credits.
  • States must make sure that emission reduction credits meet certain requirements. For example, a state can't issue multiple credits for the same project, and states must ensure that only valid emission reduction credits can be used by power plant owners to reduce their emission rate.
  • States must implement a tracking system to provide transparent, accessible, public information about energy saving projects. It is likely that existing systems for tracking renewable energy credits will evolve to implement this function.

EPA has issued draft guidance for states and energy efficiency providers to use in estimating savings. We will be commenting on the guidance, but it generally outlines a robust process for estimating savings, one that builds on the decades of evaluation experience at public utility commissions and utilities themselves.

So get to work

The Clean Power Plan will move America toward a cleaner, healthier environment for future generations while ensuring an ongoing supply of reliable, affordable power, as NRDC describes in its well-referenced resource book.

The final rule gives states, power plant owners, and energy efficiency providers the confidence they need to start ramping up energy efficiency programs now. These programs will save energy long into the future, lowering customer energy bills and reducing power plant carbon pollution.

About the Authors

Dylan Sullivan

Senior Scientist, Energy program

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