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CHP Five Years Later: Federal and State Policies and Programs Update

March 23, 2004

Washington, D.C. — Five years ago, when President Clinton first expounded the promise of combined heat and power (CHP) to cut power plant energy waste in half, key market barriers blocked the mainstreaming of CHP. These included utility charges prohibiting grid interconnection, too long tax depreciation schedules, emissions regulations that do not recognize the efficiency benefits of CHP, and an environmental permitting system that is too cumbersome.

In the intervening five years, some progress has been made on breaking down these barriers, including a federal legislative effort and the formation of a national association. Yet important barriers remain: utility practices and tariffs that discourage CHP; burdensome emissions regulations; and federal and state-level legislative and regulatory issues. The American Council for an Energy-Efficient Economy's (ACEEE) new report, CHP Five Years Later: Federal and State Policies and Programs Update, reviews progress toward decreasing market barriers, identifies areas where work is still required, and includes policy recommendations for federal and state governments.

"It is rewarding after five years to see the broad and bipartisan base of support that CHP now enjoys," said Neal Elliott, co-author and ACEEE's Industry Program Director. "However, important steps are still needed, especially continued and expanded state and federal legislative support."

The emergence of state and regional policies, programs, and other initiatives have begun making progress taking down the informational barrier, as well as some of the utility barriers. "CHP initiatives are just getting started in most states," said Elizabeth Brown, co-author and ACEEE's Industry Research Assistant, "but we are already beginning to see progress in leading states. This includes the work in Texas and California on output-based emissions standards, and in New York with financial incentives for clean CHP." This report summarizes the results of ACEEE's recent report on state CHP programs, State Opportunities for Action: Review of Combined Heat and Power State Activities, published in late 2002 and available for free at http://www.aceee.org/pubs/ie022.pdf.

"The greatest progress toward decreasing the environmental permitting barriers to CHP has been due to the increased awareness of environmental regulators regarding the benefits of CHP," said Anna Shipley, co-author and ACEEE's Industry Research Associate. "We now need to see this awareness translated into regulations that recognize the unique benefits conveyed by the energy efficiency of CHP systems."

CHP systems, also known as cogeneration, generate electricity and thermal energy in a single, integrated system. These systems are more energy efficient than separate generation of electricity and thermal energy because heat that is normally wasted in conventional power generation is recovered as useful energy for satisfying an existing thermal demand. Conventional thermal power plants waste about two-thirds of their input energy; CHP systems can cut this waste roughly in half. CHP systems could be employed in many commercial and industrial facilities. CHP has been identified as one of the key strategies for national response to global climate change (see http://aceee.org/press/0301natlgas.htm).

CHP Five Years Later: Federal and State Policies and Programs Update, by R. Neal Elliott, Anna Shipley, and Elizabeth Brown, is available for free at http://aceee.org/pubs/ie031.htm