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Energy Efficiency and Economic Development in IllinoisMarshall Goldberg, Martin Kushler, Steven Nadel, Skip Laitner, Neal Elliott, and Martin Thomas December, 1998 Executive Summary The purpose of this report is to better understand how additional investments in energy efficiency technologies can contribute to lower energy expenditures and new employment opportunities for residents of Illinois, as well as generally strengthen economic activity and quality of life. Energy is needed for light, heating and air conditioning, for production machinery, transportation, and in homes, schools, and businesses. Many of the electricity needs in Illinois have traditionally been met primarily by coal and nuclear power plants with a smaller portion from natural gas, petroleum and hydro resources. Yet, the inefficient use of these energy resources will likely constrain economic activity in Illinois. High energy costs make the state's businesses less competitive and high energy bills reduce the amount of money the state's consumers can spend on goods and services. When money is spent on energy, much of it leaves the state. When money is spent on other goods and services, much more stays locally, creating economic growth and jobs. In spite of significant reductions in energy use and real energy prices due to national trends in the past two decades, significant opportunities for cost-effective, energy-efficient investments exist in all sectors of the Illinois economy. Furthermore, many of these investments offer opportunities to improve product quality and productivity and lower operating and maintenance costs. Investments in energy-saving products and practices can lower energy bills for residents and businesses. Lower energy bills, in turn, will promote overall economic efficiency and create local jobs. Investments in energy efficiency can increase cash flow and operating margins, providing businesses a critical competitive edge. Accelerated investments in energy efficiency will enhance the state's air quality by reducing emissions associated with energy production and use. Investments in energy efficiency can encourage the development of new, clean, energy-saving technologies and industries in Illinois. Improvements in energy efficiency can also help protect the state against the impacts of possible new taxes on pollutants contributing to global climate change and other air quality problems and help offset the need for spending on pollution control technologies. In 1995, consumers in Illinois spent approximately $23 billion to provide heat, light, power, and transportation for their homes, schools, and businesses. To put these totals in perspective, energy bills were 40 percent higher than state tax collections in that year. Many community and business leaders are looking for ways to use state tax dollars more efficiently. The size of the total energy bill suggests that Illinois policy makers may also want to explore ways to use energy more efficiently. This report examines the current energy consumption patterns and expenditures within the Illinois economy. It projects what "business-as-usual" or "baseline" energy patterns might look like through the year 2015. These findings suggest that by 2015 the state as a whole will be approximately 6 percent more efficient in how much energy it uses to support a dollar of economic activity (compared to 1995 as measured by Gross State Product [GSP]) due primarily to the fact that new equipment and buildings are generally more efficient than aging equipment and facilities that will be replaced over the next decade. But the findings also show that total energy consumption will increase by 28 percent as a result of a growing economy. The study then develops two high-efficiency scenarios (one for total energy consumption and one for electricity consumption only) for the region through the year 2015. These high- efficiency scenarios are based upon detailed analysis of energy efficiency potential in buildings in the residential, commercial, and industrial sector (including industrial process improvements), as well as efficiency improvements in light duty vehicles in the transportation sector. The analysis provides estimates of the investments needed to achieve these additional energy savings as well as the resulting economic and environmental benefits. The findings of the study show that by 2015, cost-effective investments in energy efficiency in Illinois can: • Reduce energy use in Illinois by just under 32 percent, reducing consumer and business energy bills by more than $76 billion cumulatively over the 1999-2015 period; • Create 59,400 jobs; and • Reduce emissions of critical air pollutants by up to 30 percent, helping to improve environmental quality. In other words, the untapped potential for energy efficiency represents a critical economic development and environmental protection strategy for Illinois. Increased investments in energy efficiency are an important step toward promoting a sustainable energy future for Illinois. More specific findings of the report include: • Cost-effective investments in energy efficiency technologies can reduce energy use by just over 31 percent in 2015 relative to the baseline, including 43 percent reductions in electricity use and over 25 percent in fossil and other fuels outside of the utility sector. • The additional investment in energy efficiency will increase Illinois' employment base — from a net increase of 20,700 jobs in the year 2005 to a net increase of 59,400 jobs by the year 2015. The rise in employment, driven largely by the spending of energy bill savings, is equivalent to the number of jobs supported by the expansion or relocation of almost 400 small manufacturing plants in Illinois. Wage and salary compensation would similarly rise by a net of $1.6 billion by 2015 (in 1995 dollars), the equivalent of tourist expenditures from approximately 10.8 million visitor days. • As a result of these additional energy savings, Illinois ratepayers would enjoy cumulative energy bill savings of $76.3 billion over the 1999-2015 period. The high- efficiency scenario will require a $37.8 billion cumulative investment over the same period of time. This relatively small level of investment (less than 1 percent of the state's cumulative GSP over the period) can be achieved by redirecting a small portion of other investments toward productive energy investments. Only a small portion of these investments will be financed by government or through electricity rates; the vast majority of funds will come from homeowners and businesses making cost-effective investments in their homes and facilities. With all values in 1995 dollars, the energy efficiency scenario generates a positive benefit-cost ratio of 2.02 over the 17-year period of analysis. But even this value understates the cost effectiveness of the energy savings investments since the energy savings and environmental benefits will continue for many years after the year 2015. • The alternative energy strategy would have a positive benefit for the state's air quality as well. Carbon dioxide emissions, which contribute to global climate change, would be reduced by over 85 million short tons in 2015. Energy related pollutants such as sulfur and nitrogen oxides would be reduced by over 700 thousand short tons in 2015, also providing significant reductions over baseline emissions. Many of these findings are summarized in Table ES-1.
Notes: Individual columns may not add up due to rounding However, achieving these benefits will not be easy. Policy makers and business leaders will need to play an active role in helping to develop and implement a series of initiatives to make the high-efficiency scenario a reality. The types of actions should include: Developing strong and well designed policies to ensure that energy efficiency services play a major role in Illinois' restructured utility industry. These include a substantial "system benefits charge" to fund greater levels of energy efficiency, and carefully structured regulatory mechanisms for distribution utilities to make sure that these utilities have incentives to pursue cost-effective energy efficiency. Implementing strong building energy codes for residential and commercial buildings, including adoption of BOCA 1996 (including the residential Model Energy Code and the ASHRAE 90.1 code for commercial and high rise residential buildings), with the Illinois-specific increased lighting and chiller efficiencies described in the report. Developing and instituting a comprehensive and systematic set of policies to encourage industrial energy efficiency. These would include mechanisms and techniques for: opportunity identification, technical and design assistance, financial analysis, financing, operation improvements, promoting advanced technologies, and facilitating the adoption of combined heat and power (CHP) technologies. Promoting wherever possible policies which would improve the fuel economy of cars and light trucks operated in Illinois. These include incorporating "best in class" vehicle efficiency as an important criterion in state and municipal fleet decisions, and exploring creative policies such as "feebates" to encourage the purchase of fuel efficient vehicles. In addition, promoting policies that discourage urban sprawl and increased use of mass transit will help reduce transportation related energy use. Creating a Sustainable Energy Development Agency in Illinois that would fund applied R&D and demonstrations of advanced energy efficiency and renewable energy technologies; fund technology and market assessments; and provide support for technology transfer and commercialization. The agency could also help the state's utilities and state agencies in the design and evaluation of energy efficiency and renewable energy programs, and possibly assist with training or technical assistance concerning building code implementation or improving industrial energy efficiency. Click here to order in hard copy. 131 pp., 1998, $25.00, E982 |
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