ACEEE Blog

The E2e weatherization study: generating more heat than light
July 02, 2015 - 2:00 am

By Steven Nadel , Executive Director


A recent academic working paper on the low-income weatherization assistance program in Michigan, by researchers associated with the E2e project, has created much controversy. My colleague Marty Kushler recently published a blog post criticizing the paper and its accompanying policy brief; many others have done the same (see links at the bottom to read more). As the critiques have noted, there are two primary concerns with this paper:

1. The paper looks at one program in one state and inappropriately seeks to apply the results to all residential energy efficiency programs.

2. The evaluation focuses only on energy savings and ignores the fact that low-income weatherization is not only designed to save energy, but also has other objectives, such as improving occupant safety, health and comfort, addressing structural problems in homes, and reducing utility bill arrearages.

In this blog post, I’d like to take a broader look at some important issues this paper raises, building on these two points and also raising a couple of additional issues.

Methodology

First, parts of this study use an experimental research design called a randomized controlled trial, where researchers define a pool of eligible customers and randomly assign some of the eligible customers to a treatment group and some to a control group. In this way the treatment and control groups are identical. This is a powerful research approach but also has an Achilles heel: you cannot generalize the findings to households and programs that are different from those that you studied, because different types of households and different programs can have characteristics that would change the findings. In this case, they looked at weatherization of low-income households in a few counties in Michigan, and the results cannot be generalized to other states, to other programs, or to other income groups.

To illustrate the point, a study by Oak Ridge National Laboratory is looking at 30,000 homes that participated in the low-income weatherization program across the country (and not just one state). Preliminary results from this study find that, relative to a control group, benefits are on average about 1.7 times the cost––a very different result from the E2e study. While there are some differences between E2e’s approach and the quasi-experimental approach used by Oak Ridge, the big difference is in geographic coverage.

Missed benefits

Second, many energy efficiency programs and investments serve multiple purposes. To compare all costs against only some benefits is to bias the analysis. In this case the paper in one place seeks to assign all the costs to energy savings and in another place puts all the costs on carbon reduction; nowhere do they look at other important benefits of the program. To fairly evaluate such programs and investments, either all of the benefits need to be quantified and compared to the full costs, or if only energy benefits are quantified, then only the incremental costs of the energy efficiency improvements should be counted. Given that the weatherization program being studied is deliberately intended to achieve multiple benefits beyond simple energy savings, a more comprehensive assessment of benefits should have been done.

Market-only agenda

Third, it appears that one of the aims of this study was to discuss the most efficient approaches to reducing greenhouse gas emissions (this is the title of item #1 in their policy brief). In the brief they recommend market-based approaches like cap-and-trade programs and carbon taxes. While ACEEE supports such market-based approaches, we recognize the need to use multiple approaches to substantially reduce greenhouse gas emissions, including energy efficiency programs. The country will also need to use multiple approaches in order to meet broader energy and social goals. A carbon tax is unlikely to do much to address the needs of low-income households, just as greenhouse gas reduction is not the main purpose of low-income weatherization. Rather than tear down one approach at the expense of another, it would be useful to assemble a set of complementary approaches, using evaluation to make each approach as good as it can be. Biasing research, even toward a noble end, can undercut efforts to build support and find “win-win” synergies.

Missing review

Fourth, this paper is labeled a “working paper.” It has not yet been peer reviewed. Rather than release an un-reviewed study to the press to great fanfare, it would have been much more appropriate to share the results with energy efficiency evaluation and low-income weatherization experts (and not just economists) to get feedback on the draft report, learn about any problems with the draft study, and revise the study to address the problems. The issues that are being raised on many blogs regarding the E2e paper would have been much better raised in a peer-review process, rather than in the press and other public forums. This is not the first time we have had to criticize unbalanced research or inappropriate spin coming out of E2e (for other examples see here and here). The authors are all university professors; we presume this is not the way they are teaching their students to publish research.

Michigan, Wisconsin, and the media

What does this mean going forward? While we strongly support research to determine how well energy efficiency programs are functioning in practice, we hope that the E2e project does a better job in the future to seek external review before they release their findings. They should also fairly balance both the energy and non-energy benefits and costs of the programs they examine.

They can start in Wisconsin. One of the authors of the Michigan study told the Associated Press that he is finding similar results in a study of middle-income homes in Wisconsin. We strongly suggest that this new study receive expert review before it is released, and that it consider non-energy costs and benefits. Expert-reviewed research by ACEEE and others has found that non-energy benefits are also prevalent in middle-income homes. It also bears noting that middle-class weatherization, like low-income weatherization, is relatively expensive. It would be doubly irresponsible to generalize the new results to other energy efficiency programs, after picking two of the most expensive examples. For a little perspective, Lawrence Berkley Laboratory found in a recent report that whole-home weatherization programs cost utilities an average of 9.4 cents per kWh saved, while the average residential program costs only 3.3 cents per kWh saved.

We hope that the press is much more careful when it examines future E2e papers. While there is some excellent research coming out of this project, there are also a distressing number of questionable papers. Good research is immensely valuable, but poor or mischaracterized research can be far more harmful in the short term, given the media’s penchant for counterintuitive stories. The result is to hinder the ability to make rational policy decisions.

Click on the links below to read more discussions on the study.


Continuing the conversation on efficiency and the water-energy nexus
July 01, 2015 - 2:06 am

By David Ribeiro, Research Analyst


How much energy does it take to fill a glass with drinking water? If you take into account the energy to transport the water from its source through the treatment and distribution process and into your faucet, there’s a lot of embedded energy that goes into that glass of water. And that’s not even getting into any energy used in the wastewater treatment process.

It’s a simple question, but a challenging one to answer. It’s valuable, though, for water utilities to better understand the embedded energy in their systems so they can reduce costs, improve energy efficiency, and quantify the avoided energy and pollution savings that accrue from water efficiency programs. And it’s all the more important with the exceptional drought spreading across the West.

ACEEE researched this topic in a white paper released last year, Watts in a Drop of Water: Savings at the Water-Energy Nexus, which gathered data from existing literature on energy savings associated with water savings. Today we’re releasing a new paper, A Survey of Energy Use in Water Companies, representing the next step in our research. The paper presents data we collected, in collaboration with the National Association of Water Companies (NAWC) , on the energy required to treat and distribute water. The data was collected through a survey to some of NAWC’s member companies.

The response was not as high as we hoped, but we received real-world data from a selection of water utilities on how they use energy by activity, such as source/conveyance, treatment, and distribution. We also quantified how energy intensive these water companies’ processes are by examining the amount of energy required to process a million gallons of water. The results are similar to our past research, showing the mean energy intensity of our sampled water systems to be 2,300 kWh/million gallon.

The energy consumption of water can vary dramatically in the water service sector (source, conveyance, and treatment) due to a variety of factors, including the size of the water system, pumping requirements between geographic locations, and raw water characteristics. But variations also suggest room for improvement in how efficiently these systems/companies use energy to process, treat, pump, and distribute water. Most companies we surveyed have begun efforts to improve their energy efficiency through measures like energy audits of their facilities, capital investments in energy efficiency measures, and operational improvements. However, while several companies have leak-detection programs to reduce drinking water losses through pipe systems, fewer companies have embraced water conservation programs. In the survey, we asked about various potential conservation efforts including water audits for customers, direct installs of water saving technology, and water conservation incentives. Because energy is embedded in water through the water system, water conservation programs save energy and shouldn’t be overlooked.

We still need more data on the energy intensities of systems to build out this analysis. But one thing is clear: while a few respondents to our survey are ahead of the curve, there are more opportunities for greater energy efficiency, water conservation, and joint-program partnership between energy and water utilities.


35 years of energy efficiency progress, 35 more years of energy efficiency opportunity
June 30, 2015 - 10:26 pm

By Steven Nadel , Executive Director


In 1973, the Arab members of the Organization of Petroleum Exporting Countries (OPEC) imposed an oil embargo that increased energy prices, spurring efforts to conserve energy and improve energy efficiency in the US and worldwide. In 1980, energy efficiency researchers formed the American Council for an Energy-Efficient Economy. As we turn 35 years old this year, we thought it would be useful to look at energy efficiency progress over the past 35 years, and to also look at possible and recommended pathways for the next 35 years. Today we are releasing the results of this work in a report entitled Energy Efficiency in the United States: 35 Years and Counting.

The Past 35 Years

From 1980 to 2014, US energy use increased by 26%; however, over this same period, gross domestic product (GDP) increased 149%. “Energy intensity,” defined as energy use per real dollar of GDP, is a common approach for combining these two variables. US energy intensity has declined from 12.1 thousand Btu per dollar in 1980, to 6.1 in 2014, a 50% improvement. While part of that improvement can be attributed to structural changes in the economy, we conservatively estimate that about 60% of the improvement in energy intensity is due to efficiency improvements, saving consumers and businesses about $800 billion in 2014. Dividing by the US population, energy efficiency saved about $2500 per capita in 2014. These efficiency investments and savings also generated jobs and drove modest growth in the overall size of the economy (check out our fact sheet to learn how energy efficiency creates jobs).

Energy efficiency savings over the past 35 years have also improved our nation’s energy security and our environment. For example, fuel economy improvements and standards have driven down oil use in the transportation sector. Looking specifically at petroleum, imports were 33% of US crude oil use in 1983 (the recent low point), increasing to 67% in 2006 before declining to 44% in 2014. Reductions in oil, natural gas, and electricity consumption also mean reduced emissions from the combustion of fuels, including reduced emissions of sulfur dioxide and nitrogen oxides (contributors to acid rain and smog), mercury and other toxic metals (contributors to health problems), and carbon dioxide (the largest contributor to greenhouse gas). In 2014, US carbon dioxide emissions totaled 5,404 million metric tons (MMT), 10% below 2005 levels.

These overall improvements are a result of many small and large improvements throughout our economy, including improvements to equipment, new and existing buildings, industrial processes, vehicles, planes, and the electric grid. Some of these improvements are illustrated in the figure below.

Many factors have driven these efficiency improvements, including market forces, policy impacts, and the interplay between the two. To take one example, appliances have improved dramatically due to the combined impacts of federal and state appliance efficiency standards, the voluntary ENERGY STAR® labeling program that recognizes products of above-average efficiency, utility energy efficiency programs, and tax incentives that have encouraged manufacturers to develop more efficient products. On the other hand, energy prices have not been a major driver, since energy prices today are either similar to, or less than, 1980 prices, after the effect of inflation is removed.

The Next 35 Years

While much progress has been made, there are large and cost-effective energy efficiency opportunities that collectively can reduce 2050 energy use by 40-60% relative to current forecasts. Opportunities include:

  • Improved systems integration, including use of sensors, controls, “big data” and computer chips to monitor and control energy use in real time, a set of opportunities that has been labeled “intelligent efficiency;”
  • Improvements to the many types of equipment, such as computers, televisions, and elevators that collectively account for growing miscellaneous energy loads;
  • Evolution of new building design to zero net energy and ultra-low energy buildings;
  • Industrial process improvements;
  • Increased use of advanced vehicles including electric, hybrid, and self-driving vehicles;
  • Taking building energy retrofits to a much higher level, including both more retrofits and deeper retrofits (greater savings per building);
  • Improving the efficiency of the electric grid through expanding use of combined heat and power systems, improving power plant efficiency, reducing transmission and distribution losses, expanding use of other distributed generation resources, and improving grid control and integration;
  • Promoting sustainable development and transportation patterns; and
  • Working with consumers and businesses to change wasteful energy-using behaviors.

If we aggressively pursue these efficiency opportunities, we can roughly double the rate of efficiency improvement in the next 35 years relative to the past 35 years, and reduce 2050 energy use to half of current forecasts. To do this we need to take our efforts to promote energy efficiency to a new level, which means both doing it better and doing it smarter. Our efforts should:

  • Harness and transform markets
  • Make efficiency a key strategy for the utility of the future
  • Expand federal, state, and local policy efforts

The new report discusses these strategies in more detail, but take a look at the infographic below to see a snapshot of the past and future 35 years of energy efficiency. Our nation’s history of success with energy efficiency shows us what efficiency can do, and provides important lessons that will help guide us to leave a positive economic and environmental legacy for future generations.

(Click to enlarge)


Efficiency in the Clean Power Plan: What are states doing? What should they be doing?
June 26, 2015 - 10:00 pm

By Mary Shoemaker, National Policy Research Assistant


We’re currently stuck in Clean Power Plan limbo. The EPA’s comment submission deadline is behind us, the final rule is ahead of us, and the temptation to act like school’s out for summer is real. While it’s still unclear exactly how states should credit all efficiency measures in their plans, it is clear that states will have an easier time reducing energy waste, diverting carbon pollution, and complying with the Clean Power Plan if they put their thinking caps on now. One way states can dramatically lower the cost of compliance is by including energy efficiency in their compliance plans. ACEEE’s State and Utility Pollution Reduction Calculator helps states understand just how cost effectively energy efficiency can lower emissions. For a couple examples, let’s highlight major energy efficiency opportunities in Illinois and Virginia.

Illinois

Illinois has engaged other Midwestern states through the Midcontinent States Environmental and Energy Regulators stakeholder group, exploring the implications and feasibility of regional Clean Power Plan compliance in non-binding discussions. Within the state’s boundaries, pending legislation could make using energy efficiency as a compliance mechanism easier.

Illinois should be commended for its proactive 2% annual energy savings target in 2015. However, a cap on spending has impeded the state’s realization of this target, and a recent proposal by Governor Rauner to re-route a portion of ratepayer dollars earmarked for low-income efficiency programs into the state’s general fund will make achieving those goals even more difficult.

If Illinois commits to achieving 2% electricity savings annually through 2030, it would divert 43 million tons of CO2 in 2030. Another opportunity for growth is in the state’s combined heat and power (CHP) programs, for which Illinois has strong market favorability. If the state installed 2,500 MW of CHP—half of its technical potential —it would reduce 12 million tons of CO2 in 2030. Together, the savings target and the CHP deployment, displayed in the chart below, would allow Illinois to achieve an incredible 85% of its Clean Power Plan target!

Virginia

Governor Terry McAuliffe has demonstrated leadership in Virginia by appointing a chief energy efficiency officer and appointing the Executive Committee on Energy Efficiency, which met for the first time on June 1st. Governor McAuliffe’s public support for the Clean Power Plan should be commended, but it is important for the state to quickly shift into gear to meet its target. Virginia could capture the momentum of the governor's efforts to reduce energy consumption in state buildings, and educate municipalities and counties about energy performance contracting. The state could designate a state agency to help implement energy service performance contracts (ESPCs), or offer financial incentives for agencies seeking to use ESPCs, avoiding over 2 million tons of CO2 in 2030.

The state could also adopt the latest IECC and ASHRAE building energy codes, regularly adopting new codes every three years through 2030, to reduce its CO 2 emissions in 2030 by almost 7 million tons. Virginia also has room for growth in its deployment of CHP technology.

Another huge opportunity in Virginia is an energy savings target. The state has a voluntary 10% savings goal by 2022, as written inlegislation, or by 2020, as accelerated by Governor McAuliffe. However, Virginia is behind on efforts to reach this goal. By achieving 1% electricity savings annually through 2030, Virginia could avoid over 10 million tons of CO2 in 2030. As the icing on the cake, if Virginia installed 1,000 MW of CHP, divided evenly between the commercial and industrial sectors, it could divert over half a million tons of CO2 in 2030. As seen in the table below, this suite of programs would get Virginia 99% of the way towards its Clean Power Plan target—an A+ approach if there ever was one.

How else can states prepare?

With EPA’s 2016 deadline for individual state plans, there is an imminent need for states to take early action towards evaluating efficiency opportunities and taking first steps towards Clean Power Plan compliance. Additional steps that states could take now include:

  • Identify existing energy efficiency programs that could be used to meet emission performance levels . This will help states understand how to play to their own strengths.
  • Begin forecasting the carbon pollution reduction potential of efficiency policies . ACEEE’s State and Utility Pollution Reduction (SUPR) calculator can do just that.

ACEEE’s Role

In order to help states understand how to incorporate efficiency into their compliance plans, ACEEE is working on a series of guidance documents for states as they put pen to paper. ACEEE recently released templates for states’ inclusion of building codesenergy efficiency financing programs, and combined heat and power in their plans. With such a flexible syllabus from EPA, states truly have the power to chart their own path to success. Let ACEEE know how we can help! Please contact Mary Shoemaker (mshoemaker@aceee.org) with inquiries.


Residential energy efficiency works. Don’t make a mountain out of the E2e molehill
June 26, 2015 - 2:01 am

By Martin Kushler, Senior Fellow


The Internet has been burning up these last two days with reactions to a new academic working paper (Do Energy Efficiency Investments Deliver? Evidence from the Weatherization Assistance Program) by researchers at the Energy Policy Institute at the University of Chicago (EPIC) and the University of California, Berkeley, associated with the E2e Project.

Let me be blunt and to the point. The “results” of this very narrowly focused and arguably conceptually flawed study are being blown out of proportion, with many news article headlines taking this one example as representative of all residential energy efficiency programs. Unfortunately, this flawed conclusion has been promoted by the Energy Policy Institute themselves in their press release and accompanying policy brief.

For those not yet familiar with this story, the authors conducted a study of one particular low-income program (the federal Weatherization Assistance Program, or WAP), as implemented in portions of one state (Michigan), and somehow ended up with the sweeping headline “Study Finds Costs of Residential Energy Efficiency Investments are Double the Benefits.”

Some of the popular press is already picking up on this theme, and the concern is that a misunderstanding (or misuse) of this study will lead to low-income families having less access to important programs that drive down their utility bills. Or worse yet, as a broad-brush attack on all types of energy efficiency programs.

Evaluation wonks will be able to point to several minor to moderate problems with the study’s assumptions and calculations. But in the interest of time, let me focus on two fundamental flaws in the study and how the results are being “spun.”

Knocking down a straw man

First, the authors create a “straw man” implication that somehow the WAP is expected to be cost effective by simply comparing the direct energy savings to the total project costs to serve the home. In reality, no knowledgeable expert in this field expects the WAP (or any typical low-income program operated by utility companies) to be cost-effective solely on the basis of direct energy savings. States commonly exempt low-income programs from the usual cost-effectiveness tests. This is in part due to the very poor condition of the housing stock, and the major costs involved in upgrading the housing. It is also in recognition of the special needs of that target population, and that they have no discretionary income to devote to energy improvements, leaving the program to pay the entire costs.

As a result, these programs are typically judged by including the associated “non-energy benefits” in addition to the direct energy savings. These multiple benefits include things like the effects on comfort, health, safety (e.g., WAP typically installs smoke detectors, CO detectors, fixes wiring problems, fixes gas leaks, etc.), increased value of the improved housing stock, reduced utility-bill payment arrearages and non-payment collection costs (which saves money for all ratepayers), improved ability to remain in the dwelling and not have to be relocated, etc.

Studies exist in the industry that quantify these types of variables, and when taken in aggregate, the non-energy benefits’ value can nearly equal, or even exceed, the direct energy savings value. DOE’s last meta-evaluation of the Weatherization Assistance Program found direct energy savings averaging $3,917 and non-energy benefits valued at $3,466, or nearly as much as the direct energy savings benefits). Viewed in that comprehensive manner, programs like WAP are cost effective from that broader societal perspective—as a public policy, they make sense.

The study released Tuesday simply ignores those other multiple benefits, and does not quantify them in the analysis. This methodological flaw pre-ordains the conclusion.

The straw man problem is compounded when the report suggests that WAP fails as a “means to fight climate change.” While the program does produce some CO 2 reduction benefits, these are just a bit of frosting on the benefits cake. No one would suggest WAP should be considered as entirely, or even primarily, a mechanism to fight climate change. Yet the study disingenuously reports that the cost of WAP as a carbon reduction strategy is $329 per ton, by loading all the costs of the program onto the CO2 benefit as though there were no other benefits, and that the program was only being done to reduce CO2—a ridiculous premise.

Dangerous overgeneralization

The second (and unforgivable) fundamental flaw is that the study generalizes from an extremely limited sample. From one sample in one state, EPIC makes the leap to claiming that seemingly all “residential energy efficiency investments are double the benefit.”

In contrast, several national studies have examined the costs of residential energy efficiency programs across dozens of states and have found them to be highly cost effective; however, low-income programs have higher costs on a per-kWh basis. For example, in a recent study, Lawrence Berkeley National Laboratory (LBNL) finds that the cost of low income programs average 14 cents per kWh, compared to all residential programs at 3.3 cents per kWh. ACEEE’s most recent review of energy efficiency program costs similarly found that average cost per saved kWh from residential and low-income programs combined across 9 states was 3.7 cents/kWh. This is less than half the cost of electricity from a new power plant, and obviously very cost effective. And without including any monetized value for CO2 reductions, the CO2 reductions are essentially a "free" extra benefit.

In short, this study cherry-picked the worst possible program for comparing total costs to just direct energy savings, then set up a straw man to knock down, then tried to suggest, from an extremely limited sample of one program type, that all “residential energy efficiency investments” are suspect.

Cherry-picking

I should note one additional factor that really exacerbates the “cherry-picked” issue, and which I’ve not seen mentioned in any other discussion. This study looked at the WAP during the “stimulus package” years. As someone who was directly involved with one of the biggest “Better Buildings” pilots in the nation during that time period, I can tell you that the WAP was extremely stressed at the time, with tremendous pressure to push money out to the field. Job creation was at least as big a goal as energy savings, and they were functioning with a lot of new and inexperienced employees in order to handle the huge increase in funding and the deadlines to get it spent. I was there, on the ground, in Michigan at the time, and I know for a fact that the stimulus package demands on the system drove up the average cost per home in the program, in an effort to “get the money spent.” This would naturally tend to diminish the apparent cost effectiveness in terms of energy savings per dollar spent. This “stimulus package” distortion of the WAP during the years of the study further discredits any leap to generalize results to the “normal” program, much less to other examples of “residential energy efficiency investments.”

The real motive behind the study

Given the affiliation of the authors with E2e, one suspects that an important motive at play here is to make the case for the neo-classical economists’ preferred climate policy: so-called “market-based” approaches such as a carbon tax. Indeed, they explicitly argue for that as an alternate policy approach in both their press release and the accompanying policy brief. ACEEE supports the concept of a carbon tax. But it should be seen as a complement to, not a replacement for, traditional energy efficiency programs.

Viewed in the proper context, this new report could be seen as an interesting study to add to the large volume of energy efficiency program evaluations conducted over the years. The study does identify some problems with this particular program, but they can be easily addressed. For example, the energy audits conducted do not appear to have been calibrated with actual energy usage for each home, and thus baseline energy use and the amount of energy saved were overestimated. A study in New York found that such calibration, among other steps, improved the accuracy of energy savings estimates from 60% to 90%.

However, if taken out of context and generalized way beyond any justification, this new E2e working paper could be misused to attack critically important energy efficiency policies and programs. The data on the cost-effectiveness of residential energy efficiency programs are robust and extensively documented. Hopefully, well-informed policymakers and reporters will prevent any misuse of the study.

Postscript

It should be noted that one of the co-authors of the study, in an interview with the Washington Post, properly acknowledged that the study results should not be generalized. Meredith Fowlie, an associate professor of economics at the University of California, Berkeley, was quoted by the Post as saying: “This is one study in one state looking at one subpopulation and one type of measure,” she says. “I would not feel comfortable generalizing from our study in Michigan.”


Why everyone benefits from energy efficiency programs
June 24, 2015 - 2:54 am

By Brendon Baatz, Sr. Research Analyst, Utilities, State, and Local Policy Program


Opponents of energy efficiency often make the claim that the only people who benefit from utility energy efficiency programs are program participants. Any energy efficiency improvements those participants are making, they argue, are simply being subsidized by non-participants. Our study finds that is not true; all utility system customers benefit from energy efficiency investment. In our new report, Everyone Benefits: Practices and Recommendations for Utility-System Benefits of Energy Efficiency , we explore the wide range of advantages energy efficiency programs provide to the utility system as a whole and to all customers in that system.

Reducing costs for utilities benefits all customers

Our review of utility system benefits revealed a wide range of substantial benefits beyond those typically included, such as avoided cost of producing energy and building power plants. Utilities are also able to save money by not building new power lines, substations, and transformers. These avoided costs are substantial and real benefits of energy efficiency. Energy efficiency can also reduce a utility’s cost of complying with major state and federal environmental rules, lower wholesale energy costs by reducing demand, and reduce major risks faced by utilities for costly projects like buying natural gas or building power plants.

Why do we want to reduce all these costs for a utility? Reducing utility costs in these areas is important because they will reduce electric rates for all customers. Utilities are allowed to charge customers only for real costs they incur. If they reduce those costs, they will have to charge customers less money for service.

Most states aren’t including all the benefits in their analysis

In our review of utility system benefits, we found that most states and utilities aren’t including all of the benefits when deciding which programs to offer. Many states lack a coherent policy governing which utility system benefits should be included in cost effectiveness testing and how to calculate those benefits (a problem we also see in participant and societal benefits). This leads to many utilities and jurisdictions omitting relevant benefits in cost effectiveness screening, thereby leaving cost-effective energy efficiency—and significant cost savings—on the table. Such omissions lead to inefficient resource allocation and higher costs for everyone.

Moving forward

In our report we offer specific recommendations on how program administrators should calculate benefits, including properly measuring the value of energy savings at different times of the day and year, accounting for differences in short- and long-term costs, and choosing a discount rate that reflects reduced utility risk for energy efficiency. We also recommend including all of the relevant benefits in program screening. These are real benefits that reduce utility costs for everyone in the system.

While some are harder to determine, our review of state practices found that most benefits have been quantified by at least one state. Other states could learn from these studies how to include estimates of those benefits. It’s no accident that the states with the most coherent policy for determining benefits are more often those capturing the most cost effective energy efficiency.

We hope states are able to use the report as a guide to capture all utility system benefits of energy efficiency. Our report finds that a great opportunity exists to improve the inclusion of these benefits. Doing so would increase the level of cost effective energy efficiency and reduce rates for all utility customers.


Did EIA underestimate the role of energy efficiency in the Clean Power Plan?
June 22, 2015 - 8:15 pm

By Steven Nadel , Executive Director


In May, the Energy Information Administration (EIA) released an analysis looking at the impacts of EPA’s proposed Clean Power Plan (CPP). The overall EIA analysis finds that the goals in the CPP can be met, with energy efficiency, renewable energy and switching from coal to gas generation all playing a significant role, but with switching to natural gas playing the dominant role. The changes will increase electricity prices 3-7% in the 2020-2025 period relative to a reference case, but by 2030, electricity prices in the CPP and reference cases will be similar in most regions. However, due to the influence of energy efficiency in reducing consumption, energy bills will increase by less than energy prices. By 2030, energy bills are about 1% higher and by 2040 energy bills will be slightly lower under the CPP than in the reference case.

In order to incorporate energy efficiency into its analysis, EIA had to collect some new data and refine its models. Prior to now it was very difficult for EIA to incorporate many energy efficiency policies into its analyses. We commend EIA for undertaking the effort to better include energy efficiency in their modeling. In our view, though, this remains a work in progress, and we trust that EIA will continue to refine its models.

Did EIA count all efficiency opportunities available?

In its analysis, EIA found that increased energy efficiency will reduce US electricity use for buildings by 2.6% in 2030 (1.8% decline in total US consumption), due mostly to utility rebate programs. EIA did not include expanded industrial efficiency into its CPP analysis. EIA also did not incorporate such policies as increased building codes and or expansion of combined heat and power (CHP) beyond the base case assumptions into its CPP analysis. A recent ACEEE report found that if states fully incorporate several energy efficiency policies into their CPP plans (e.g., energy saving targets for utilities, building codes and CHP), energy efficiency could reduce electricity consumption by about 25% relative to 2012 electricity sales, or about 22% relative to projected 2030 sales. That’s more than ten times what EIA found.

Why the big difference?

There appear to be two major factors accounting for the difference between the EIA and ACEEE analyses. First, EIA only considers a subset of available energy efficiency actions. It just considers utility programs affecting buildings, and only looks at some specific efficiency measures incorporated into its models, such as more efficient lighting, water heating, refrigeration and heating and cooling systems. Increasingly, energy efficiency programs are looking beyond simple equipment upgrades, but these efforts are not captured in the EIA models (see ACEEE’s 2013 report on next generation programs). Furthermore, EIA looked only at technologies widely available today and did not consider the evolution of new technologies in the future.

Second, EIA did not count existing utility energy efficiency program efforts to the extent they are already incorporated into their reference case forecast. The reference case forecast incorporates historical trends, which, in their CPP report, EIA estimates to be savings of 0.5% of utility sales each year. Over EIA’s ten-year analysis period, this means about 5% savings that EIA has in their 2030 baseline and not in their CPP case. Thus the difference between the EIA and ACEEE analyses is more like a factor of three: ACEEE’s 22% savings vs. EIA’s approximately 7% savings (1.8% plus 5%).

Bottom line

It’s good that EIA is working to better incorporate energy efficiency, but there’s substantially more efficiency available to states for their CPP compliance plans than is included in EIA’s initial analysis.


The Phase 2 truck fuel efficiency proposal is heading in the right direction, but has a few miles to go
June 20, 2015 - 1:25 am

By Siddiq Khan, Senior Researcher


The fuel efficiency and greenhouse gas emissions standards proposed today by the Environmental Protection Agency and the Department of Transportation would mean major gains in fuel efficiency for heavy-duty vehicles by 2027. The standards would deliver savings at the pump to truck owners and operators while reducing freight costs for businesses and for American families. The heavy-duty program is also a key element of the president’s climate action plan.

Yet the proposal falls short of what this program could and should achieve. ACEEE and others called for a 40% average fuel consumption reduction by 2025, relative to 2010 levels. Our first take is that the proposed standards would deliver a 36% reduction. The engine standards, in particular, appear to be weak, achieving only about 4% fuel savings, when they should be achieving over 10%. The purpose of having a separate engine standard is to set a high bar with a long lead-time, giving manufacturers the certainty to invest in major new technologies, like waste heat recovery. A 4% reduction in a decade just won’t do the job.

The proposal looks stronger in other areas, as in the standards for heavy-duty pickups and vans, though still a bit shy of achievable levels. It also fills some big gaps in the existing standards. Trailers will be brought into the program in 2018, which will reduce fuel consumption by up to 8%. Transmission efficiency and powertrain integration will be credited under the new program, another significant step forward.

We’ll be supporting timely finalization of the rule while seeking to shore up the weaker elements of the proposal during the comment period. Previously adopted heavy-duty fuel efficiency standards have already helped US companies to advance their leadership globally in truck and engine efficiency technologies, and a strong rule for the second phase of the program will help them consolidate that advantage.


States don't need to gamble with EPA rulemaking. Energy efficiency can achieve two-thirds or more of Clean Power Plan targets
June 19, 2015 - 2:27 am

By Sara Hayes, Sr. Manager and Researcher, Air and Climate Policy


A number of state leaders have gone all in, suing the EPA for a rule it hasn't even finalized yet. We've seen a first draft of EPA's proposed Clean Power Plan, but the final rule could change dramatically. One thing that EPA won't change, though, is the language in the Clean Air Act that requires this rulemaking. That language came from Congress, and luckily for states, it provides a great deal of discretion to them to determine how to meet EPA's final performance standards.

This is a jackpot for states. It means that their first and best options remain on the table, regardless of how the final rule gets shuffled. We used a new ACEEE tool to determine that two-thirds of EPA's proposed emission reductions for the nation can be met with the adoption of just three common efficiency policies. The graph below compares the reduction in nationwide emission rates that would be required by the draft rule in 2030 (39%) with the national emission rate reduction that could be achieved through a few select efficiency policies (27%).

States have a lot of experience with these three policies, but there are many more options they can draw from. The goals that EPA sets for states vary widely and some states will have significantly more to do than others. Regardless of EPA’s goals, energy efficiency will be the best play for most states to reduce greenhouse gas emissions from the power sector at the lowest possible cost. Reducing energy waste and improving technologies so that we use less to accomplish more will position states so that other investments they make will be even more affordable. For example, some states may decide to reduce emissions by building new, cleaner generation. While this can be an attractive option, it can also be expensive. Deploying energy efficiency options first reduces the amount of new generation that is needed, thereby reducing the costs of building new facilities.

EPA staffers are under the gun to get a final rule published in time for summer, but ultimately the stakes are highest for states. Luckily, huge amounts of untapped energy efficiency potential means states have an ace in the hole that will help them to provide clean, reliable and affordable energy.


2025 CAFE standards under the microscope
June 18, 2015 - 9:11 pm

By Therese Langer, Transportation Program Director


A report released today by the National Research Council (NRC) provides important input to the upcoming “midterm evaluation” of fuel economy and greenhouse gas emissions standards now in place. The 600-page report, Cost, Effectiveness and Deployment of Fuel Economy Technologies for Light-Duty Vehicles reviews the work done by the National Highway Traffic Safety Administration and the US Environmental Protection Agency (EPA) leading to the 2012 adoption of standards raising fuel economy to a nominal 54.5 miles per gallon on average in 2025. I served on the committee that wrote the report, which found the agencies’ analysis to be “thorough and of high caliber on the whole.” Some notable points beyond what’s in the report summary:

NRC estimates of technology effectiveness and cost are comparable to the agencies’ for most technologies.

The report provides estimates of effectiveness and cost of the technologies considered by the agencies in developing the standards. After some culling and aggregation to facilitate display, I show in the figure below how the committee’s estimates of technology cost-effectiveness compare to the agencies’. For each technology listed on the left, the length of a bar represents the ratio of committee estimates to agency estimates of cost per percent fuel consumption reduction. Committee members did not always agree amongst themselves on the best estimate, so the report provides two cost and/or two effectiveness values for many technologies. In the figure, the upper bars (blue) reflect the committee’s higher effectiveness and lower cost values, and the lower bars (red) reflect the committee’s lower effectiveness and higher cost values. The large number of bars with lengths close to 1 indicates substantial agreement with the agencies in most technology categories—though not all—with differences of under 20% for the most part.

NRC and Agency Cost-Effectiveness Comparable for Most Technologies
Ratio of NRC Cost per Percent Fuel Savings to Agency Estimate - Midsize Car with I4 Engine

Source: Data from NRC Report, Tables S.1, S.2, S.1a, S.2c

Mass reduction and transmissions stand out as areas of significant difference between the NRC and agency estimates. For transmissions, the committee found lower potential fuel savings than the agencies did in moving from 6-speed to 8-or-more-speed and shift optimization. Hence transmissions will be a key area to revisit during the midterm evaluation, and indeed EPA’s technical work for the review includes extensive benchmarking of vehicles with advanced transmissions and exploring what can be achieved through better shift logic.

The committee found several other efficiency technologies that may help manufacturers improve fuel economy but that were not included in the agencies’ analysis, and hence do not appear in the figure above.

Mass reduction cost projection is difficult.

Reducing vehicle mass is widely viewed as a key strategy to improve fuel economy, and one to which manufacturers are already devoting substantial effort. The committee found that “the uncertainty surrounding the cost of mass reduction is particularly large.” At levels of mass reduction of 10% or below, the agencies’ cost estimate falls between the higher and lower NRC estimates. The lower estimate reflects the view that modest reductions in mass can be achieved at no cost. But for high levels of mass reduction, the committee projected costs much higher than the agencies’. The committee nonetheless predicted that manufacturers will reduce mass by 20% or more in large vehicles, motivated both by the need to improve fuel economy and by other benefits of reducing mass, such as the ability to increase towing and load capacities without any modifications to the power train. So, even if these higher costs were realized, part of the cost would have to be chalked up to meeting market demand for attributes other than fuel economy.

A midsize car meets the 2025 fuel economy target with a conventional power train.

The committee didn’t estimate the overall cost to comply with the standards; that would have required finding technology packages to reach the appropriate fuel economy target for every vehicle model sold and applying fleet averaging, off-cycle credits, advanced technology credits, and other flexibilities the program puts at manufacturers’ disposal. However, the report does show an illustrative technology pathway to meet the 2025 fuel economy target starting with a 2008 midsize car with an I4 engine and a footprint (area defined by the tires’ contact points with the ground) of 46.6 square feet. The vehicle met its 2025 target without transitioning to an electrified powertrain.

The cost of the technologies to reach the target was $1,181, using the committee’s lower cost and higher effectiveness estimates, and $1,658 using its higher cost and lower effectiveness estimates. (This is direct cost, i.e., without retail markup.) By comparison, using the agencies’ technology effectiveness and cost numbers, it would cost $1,060 to reach the fuel economy target—not significantly different from the committee’s lower cost scenario. Even the committee’s higher cost estimate is much closer to the agency number than fuel economy skeptics’ estimates have been in the past. 

And most importantly, these estimates do not reflect the full range of efficiency technologies under development.

Technology innovation can further reduce the cost of meeting 2025 targets.

The committee identified several technologies that were not included in the compliance scenario the agencies developed in setting the standards; for example, high compression ratio engines, electrically assisted superchargers, dedicated exhaust gas recirculation, and ethanol boosted direct injection engines. And it’s a safe bet that other technologies not considered either by the agencies or by the committee will enter the market over the next decade. As the report states, “these unanticipated innovations may permit the industry to meet emission standards at lower than predicted cost.”

Thus far, fuel efficiency technologies in current vehicles are outperforming projections.

Comparing some high-selling 2014 vehicles to their 2008 counterparts, the committee found that the agencies’ estimates of the effectiveness of fuel efficiency technologies were realized, and in some cases exceeded. For example, the package of technologies applied to a Honda Accord achieved a 24% greater reduction in fuel consumption from 2008 to 2014 than the agencies projected would result from that package.

All in all, the NRC report provides strong evidence of the soundness of the CAFE standards out to 2025. The report highlights a few areas that will especially benefit from additional agency scrutiny in the midterm review. It also points to emerging technology opportunities that could reduce the cost of compliance with the 2025 standards, or alternatively allow vehicles to go beyond those standards to reach even higher fuel economy levels.