ACEEE TESTIMONY

TESTIMONY OF HOWARD GELLER, FORMER EXECUTIVE DIRECTOR
THE AMERICAN COUNCIL FOR AN ENERGY-EFFICIENT ECONOMY

BEFORE THE COMMITTEE ON SCIENCE, ENERGY SUBCOMMITTEE
U.S. HOUSE OF REPRESENTATIVES

HEARING ON ENERGY REALITIES: RATES OF CONSUMPTION,
ENERGY RESERVES, AND FUTURE OPTIONS

May 3, 2001

ACEEE is a non-profit organization dedicated to increasing energy efficiency as a means for both promoting economic prosperity and protecting the environment. We were founded in 1980 and have contributed in key ways to energy legislation adopted during the past 20 years, including the Energy Policy Act of 1992 and the National Appliance Energy Conservation Act of 1987. I appreciate the opportunity to appear again before the Science Committee.

There are a variety of serious energy challenges confronting the United States at this time. California is experiencing power shortages and severe electricity price spikes. Power reliability problems could spread this summer or in coming years to other regions such as the Pacific Northwest or New York. Natural gas prices have significantly increased in many parts of the country, causing skyrocketing home energy bills this past winter. And our reliance on imported oil has grown due to a combination of declining domestic oil supply and growing demand linked to the lack of fuel efficiency improvement in motor vehicles. Oil imports more than doubled during the past 15 years and oil imports now exceed domestic oil production.

Energy efficiency improvement has contributed a great deal to our nation's economic growth and increased standard of living over the past 25 years. Consider these facts which are based primarily on data published by the Energy Information Administration:

1. Total primary energy use per capita in the United States in 2000 was almost identical to that in 1973. Over the same 27-year period economic output (GDP) per capita increased 74 percent.
   
   
2. National energy intensity (energy use per unit of GDP) fell 42 percent between 1973 and 2000. About three-quarters of this decline is attributable to real energy efficiency improvements and about one-quarter is due to structural changes and fuel switching.
   
   
3. If the United States had not dramatically reduced its energy intensity over the past 27 years, consumers and businesses would have spent at least $430 billion more on energy purchases in 2000.
   
   
4. Between 1996 and 2000, GDP increased 19 percent while primary energy use increased just 5 percent. Imagine how much worse our energy problems would be today if energy use increased 10 or 15 percent during 1996-2000.

Even though the United States is much more energy-efficient today than it was 25 years ago, there is still enormous potential for additional cost-effective energy savings. Some newer energy efficiency measures have barely begun to be adopted. Other efficiency measures could be developed and commercialized in coming years, with proper support. The Department of Energy estimates that increasing energy efficiency throughout the economy could cut national energy use by 10 percent or more in 2010 and about 20 percent in 2020, with net economic benefits for consumers and businesses.¹ ACEEE estimates that adopting a comprehensive set of policies for advancing energy efficiency could lower national energy use by as much as 18 percent in 2010 and 33 percent in 2020, and do so cost-effectively.²

Whether the energy savings potential is 20 or 30 percent, increasing the efficiency of our homes, appliances, vehicles, businesses, and industries should be the cornerstone of national energy policy today since it provides a host of benefits. Increasing energy efficiency will:

• reduce energy waste and increase productivity, without forcing consumers or businesses to cut back on energy services or amenities;
• save consumers and businesses money since the energy savings more than pay for any increase in first cost;
• reduce the risk of energy shortages and improve the reliability of overtaxed electric systems;
• reduce energy imports;
• reduce air pollution of all types since burning fossil fuels is the main source of most types of air pollution;
• lower U.S. greenhouse gas emissions and thereby help to slow the rate of global warming.

Furthermore, increasing energy efficiency does not present a trade-off between enhancing national security and energy reliability on the one hand and protecting the environment on the other, as do a number of energy supply options. Increasing energy efficiency is a "win-win" strategy from the perspective of economic growth, national security, reliability, and environmental protection.

Energy Efficiency Policy Recommendations

Here are five "top priority" energy efficiency policy recommendations from ACEEE and our allies. These policies involve a combination of "carrots" and "sticks"–new incentives, funding for R&D and technology deployment, and new regulations. The policies would significantly increase the efficiency of energy use in our homes, commercial buildings, factories, and vehicles. They would not entirely solve our nation's energy problems, but they would make a major contribution towards addressing the energy challenges our nation is now facing.

1) Reject the Deep Cuts in Funding Proposed for DOE's Energy Efficiency Programs and Instead Expand These Programs in FY2002

The Department of Energy (DOE) has made many valuable contributions towards increasing the energy efficiency of U.S. buildings, appliances, vehicles, and industries. Consequently, the President's Committee of Advisors on Science and Technology stated in 1997 that "R&D investments in energy efficiency are the most cost-effective way to simultaneously reduce the risks of climate change, oil import interruption, and local air pollution, and to improve the productivity of the economy."³

This is not just a rhetorical statement. DOE recently documented that 20 of its most successful energy efficiency projects have already saved the nation 5.5 quadrillion BTUs of energy, worth about $30 billion in avoided energy costs, over the past two decades.⁴ The cost to taxpayers for these 20 activities was $712 million, less than 3 percent of the energy bill savings so far. In fact, the energy bill savings from these 20 projects alone is over three times the amount of money appropriated by the Congress for all DOE energy efficiency and renewable energy programs during the 1990s, demonstrating that spending taxpayers money on energy efficiency R&D and deployment is a very sound investment.

There are other indicators of success and effectiveness besides the 20 projects reviewed in this report. DOE's Office of Industrial Technologies (OIT) tracks the adoption and utilization of new technologies it has funded over the years. It recently documented that OIT has contributed to the development of over 45 commercially available technologies. These technologies, as well as some of OIT's technical assistance activities, have reduced industrial energy use by over 1.6 quadrillion BTUs cumulatively through 1999.⁵ This is equivalent to industry cutting its energy bills by $6.5 billion.

DOE's Office of Building Technology, State and Community Programs (OBTS) has helped to develop and commercialize a number of important energy efficiency technologies including low-emissivity window coatings, electronic ballasts for fluorescent lamps, high efficiency compressors for refrigeration equipment, and new housing designs and retrofit techniques. Appliance efficiency standards established by DOE have already saved consumers tens of billions of dollars on their utility bills. Likewise, building code development, adoption, and support activities carried out by OBTS have saved about 0.5 quadrillion BTUs of energy or $3.5 billion in energy costs cumulatively through 2000.

DOE's Office of Transportation Technologies (OTT) has helped to increase the fuel efficiency of both passenger vehicles and heavy trucks. OTT contributed to the development of new composite materials such as reinforced polymers and techniques for using aluminum and metal alloys in order to reduce vehicle weight and improve fuel economy. OTT also is contributing to the development of the hybrid-electric vehicles U.S. manufacturers will introduce over the next few years. These vehicles will get 25-100% better fuel economy than typical vehicles produced today. OTT also has helped to increase the efficiency and reduce the emissions of diesel engines used in heavy vehicles, and its Clean Cities program has played a critical role in promoting the purchase and use of alternative fuel vehicles.

DOE's Federal Energy Management Program (FEMP) has helped to reduce energy use per square foot of floor area in Federal buildings by 19% since 1985, thereby cutting Federal energy expenditures by over $6 billion cumulatively. The FEMP has trained over 13,000 Federal energy managers, assisted with the design of over 200 energy savings projects in Federal facilities, and helped Federal agencies make use of energy savings performance contracts. For each dollar invested in energy efficiency in Federal buildings, there are typically $4 in energy cost savings for Federal agencies over the life of the project.

The Bush Administration has proposed cutting energy efficiency R&D and technology deployment programs (apart from grants to low-income households for home weatherization) by $180 million (29%) in FY2002. Some programs would be cut by 50% or more. Cutting funding for DOE's energy efficiency programs will increase consumers' energy bills, hurt U.S. economic growth, increase the likelihood of power shortages, put upward pressure on energy prices, increase oil imports, and increase air pollution. Deep cuts in DOE's energy efficiency programs also would harm public-private partnerships that have been built up over many years and harm the energy efficiency R&D and deployment "infrastructure" that exists at the national labs, state energy offices, and elsewhere. These cuts should be rejected by the Congress. In light of the serious energy problems our nation is facing, we should expand, not cut, energy efficiency R&D and deployment programs.

ACEEE and our allies recommend increasing DOE's energy efficiency programs, both technology R&D and deployment programs including grants for weatherization of low-income households, by $170 million (20%) in FY02. The increase should be spread across the programs, covering R&D projects in all sectors as well as deployment programs. Increasing funding for a broad array of energy efficiency programs will help consumers and businesses lower their energy bills in the near term, while developing the new technologies needed to address our energy challenges over the medium and long term. In relative terms, this increase is less than one percent of the overall DOE budget and would result in energy efficiency programs receiving just 5 percent of the total DOE budget. Further details concerning our budget recommendations are included in a new report titled Sensible Energy Policies for Our Growing Economy which I would like to submit to the Subcommittee.

2) Increase Corporate Average Fuel Economy (CAFE) Standards for Cars and Light Trucks or Adopt an Equivalent Fuel Consumption Cap

The average fuel economy of new passenger vehicles (cars and light trucks) has declined from about 26 miles per gallon (mpg) in 1988 to 24 mpg in 2000 due to increasing vehicle size and power, the rising market share of light trucks, and the lack of tougher Corporate Average Fuel Economy (CAFE) standards. The original CAFE standards for cars were adopted in 1975 and reached their maximum level in 1985.

We recommend increasing the CAFE standards for cars and light trucks 5% per year for 10 years so that they reach 44 mpg for cars and 33 mpg for light trucks by 2012, with further improvements of 3% per year beyond 2012. Alternatively, the standards for cars and light trucks could be combined into one value for all new passenger vehicles, specifically 38 mpg by 2012. This level of fuel economy improvement is technically feasible and cost effective for consumers, and it can be achieved without compromising vehicle safety.⁶ The 5% annual fuel economy improvement is the rate of improvement that Ford has indicated it will achieve voluntarily for its SUVs over the next five years. If this rate can be achieved in SUVs, it can be achieved in all new vehicles made by Ford as well as other manufacturers.

Car manufacturers will protest and say "it can't be done" or "it will cost a fortune," as they did when the original CAFE standards were debated. The initial CAFE standards were enacted by the Congress and signed into law by President Ford in 1975 in the face of industry opposition, and the car companies complied with these standards at reasonable cost. Tougher standards are now long overdue and should be adopted before we face another oil price shock or crisis, considering "technological feasibility, economic practicability, and the need of the nation to conserve energy," as stated in the Energy Production and Conservation Act of 1975.

Tougher fuel economy standards should be complemented by tax credits for purchasers of innovative, highly efficient vehicles (see policy 4 below), expanding taxes on gas guzzling vehicles, increasing labeling and consumer education efforts, and continuing vigorous R&D on fuel-efficient, low emissions vehicles. This combination of policies would facilitate compliance with the tougher standards. An alternative approach would be to establish a cap on the use of petroleum products by passenger vehicles and then come up with the policy mechanisms, including but not limited to stronger CAFE standards, that would enable the cap to be met. This approach was included in recent Senate legislation (S. 597), which sets the cap at 105% of fuel consumption in 2000 starting in 2008.

The CAFE standards proposed here would save about 1.5 million barrels of petroleum per day by 2010 and 4.8 million barrels per day by 2020.⁷ Over 40 years, increasing vehicle efficiency as suggested above would save 10-20 times more oil than the projected supply from the Arctic National Wildlife Refuge (ANWR) and more than three times total proven oil reserves today.⁸ The avoided carbon dioxide emissions would reach about 82 million metric tons (MMT) of carbon equivalent by 2010 and 225 MMT by 2020. The fuel consumption cap proposed in S. 597 would result in a similar level of energy savings and avoided CO2 emissions in the near term (i.e., by 2010).

3) Adopt a National System Benefit Trust Fund

Electric utilities historically have funded programs to encourage more efficient energy use, assist low-income families with home weatherization and energy bill payment, promote the development of renewable energy sources, and undertake research and development. Experience with utility energy efficiency programs in New England, New York, and California shows that they provide energy bill savings for households and businesses are around twice costs (both the program costs and measure costs).⁹ However, increasing competition and restructuring have led to a decline in these "public benefit expenditures" over the past five years. Total utility spending on all demand side management programs (i.e., energy efficiency and peak load reduction) fell by nearly 50% from a high of $3.0 billion in 1993 to $1.6 billion in 1998 (1998 dollars).

In order to ensure that energy efficiency programs and other public benefits activities continue following restructuring, 15 states have established system benefits funds through a small charge on all kilowatt-hours (kWhs) flowing through the transmission and distribution grid. We recommend creation of a national systems benefits trust fund that would provide matching funds to states for eligible public benefits expenditures. Specifically, we recommend a non-bypassable wires charge of two-tenths of a cent per kWh. This concept and specific amount were included in utility restructuring bills sponsored by Senator Jeffords (S. 1369) and Rep. Pallone (H.R. 2569) in the last Congress.

This policy would give states and utilities a strong incentive to expand their energy efficiency programs and other public benefits activities. All states and utilities would pay into the fund, but they would only get money back out if they establish or continue energy efficiency programs and other public benefit activities. However, individual states, not the federal government, would decide how the money gets spent in each state.

We believe this policy would lead to widespread energy efficiency improvements in lighting, appliances, air conditioning, motors systems, and other electricity end uses. We estimate it could save as much as 130 TWh (3.5% of projected electricity use) in 2005 and 340 TWh (9% of projected use) in 2010.¹⁰ With these levels of electricity savings, the risk of power shortages in the future will diminish, there will be fewer price spikes caused by periods of tight supply and demand, and there will be less need to build often contentious new power plants. In addition, pollutant emissions from power plants will fall, thereby improving public health and helping cities and states meet the ambient air quality standards.

4) Enact Tax Incentives for Highly Energy-Efficient Vehicles, Homes, Commercial Buildings, and Other Products

Many new energy-efficient technologies including fuel cell power systems, hybrid and fuel cell vehicles, gas-fired heat pumps, super-efficient refrigerators and clothes washers, and super-efficient new buildings have been commercialized in recent years or are nearing commercialization. But these technologies may never get manufactured on a large scale or widely used due to their initial high cost, market uncertainty, lack of consumer awareness, and other barriers.

Tax incentives can help manufacturers justify mass marketing for innovative energy-efficient technologies. Tax credits also can help buyers (or manufacturers) offset the relatively high first cost premium for the new technologies, thereby helping to build sales and market share. Once the new technologies become widely available and produced on a significant scale, costs should decline and the tax credits can be phased out.

We recommend providing tax incentives for a variety of highly energy-efficient vehicles, buildings, and other products. A key element in designing the credits is for only highly efficient products to be eligible. If the eligibility level is set too low, then the cost to the Treasury will be high and incremental energy savings low.

We recommend tax incentives for the following products:

• Appliances. A tax credit of $50-100 for manufacturers of highly efficient clothes washers and refrigerators will help save energy and water (with a cap on the total credit per manufacturer). This proposal has been introduced by Sens. Grassley and Allard, Rep. Nussle, and others. It is strongly supported by the appliance industry.
  
  
• New Homes. A tax credit of up to $2,000 for highly efficient new homes will stimulate efficiency and help lower housing costs for American families. Versions of this proposal have been introduced by Sen. Bob Smith (S. 207) and Rep. Bill Thomas and others, and variants are included in both the Murkowski-Lott (S. 389) and Bingaman-Daschle (S. 596) energy bills.
  
  
• Other Building Equipment. We support a 20% investment tax credit with caps for innovative building technologies including very efficient furnaces, stationary fuel cell power systems, gas-fired heat pumps, and electric heat pump water heaters. This proposal is included in the Bingaman bill.
  
  
• Hybrid Electric and Fuel Cell Vehicles. Tax credits of up to $5,000 for hybrid electric vehicles and $8,000 for fuel cell vehicles will help jump start introduction and purchase of these innovative, fuel-efficient technologies. The incentives should be based primarily on energy performance and provide both fuel savings and lower emissions, as is the case in the CLEAR Act introduced April 24 by Sen. Hatch and others.
  
  
• Commercial Buildings. We support a tax deduction of $2.25 per square foot for investments in commercial buildings and multifamily residences that achieve a 50% or greater reduction in heating and cooling costs compared to buildings meeting current model energy codes. This proposal is included in legislation sponsored by Sen. Bob Smith (S. 207).
  
  
• Combined Heat and Power. We support either a 10% investment tax credit or seven-year depreciation period for combined heat and power systems with an overall efficiency of at least 60-70% depending on system size. This proposal has strong industry support and is included in both the Murkowski and Bingaman bills.

5) Enact or Strengthen Efficiency Standards on Various New Products

Federal appliance and equipment efficiency standards were signed into law by President Reagan in 1987 and expanded under President Bush in 1992. Minimum efficiency standards were adopted because many market barriers, such as lack of awareness, rush purchases when an existing appliance breaks down, and purchases by builders and landlords, inhibit the purchase of efficient appliances in the unregulated market. Standards remove inefficient products from the market but still leave consumers with a full range of products and features to choose among. Appliance and equipment standards are clearly one of the federal government's most effective energy-saving programs. Analyses by DOE and others indicate that in 2000, appliance and equipment efficiency standards saved 1.2 quadrillion Btu's (quads) of energy (1.3% of U.S. electric use) and reduced consumer energy bills by approximately $9 billion with energy bill savings far exceeding any increase in product cost.¹¹ By 2020, standards already enacted will save 4.3 quads/year (3.5% of projected U.S. energy use), and reduce peak electric demand by 120,000 MW (more than a 10% reduction).

In order to provide additional cost-effective savings under this program, we recommend three actions:

• DOE, with adequate funding and encouragement from the Congress, should commit to completing equipment standard rulemakings in a timely manner. These rulemakings include initial standards for distribution transformers as well as new, updated standards for commercial air conditioning systems and residential heating systems. On-going proceedings should be completed within two years, new proceedings within three years.
• The Congress should adopt new efficiency standards for products now or soon to be covered by state efficiency standards. Among the products that should be included are distribution transformers (Congressional adoption will be quicker and easier than a DOE rulemaking), commercial refrigerators, exit signs, traffic lights, torchiere lighting fixtures, and ice makers. California is now adopting standards on many of these products and Massachusetts and Minnesota already have standards on distribution transformers. None of these standards have been controversial and all involve highly cost-effective energy savings. In addition, the Congress should adopt limits on standby power consumption for household appliances and electronic products such as televisions, VCRs, cable boxes, and audio equipment. Doing so would substantially reduce the amount of electricity consumed when products are not "on".
• The Congress should urge the Bush Administration to permit final adoption of a SEER 13 efficiency standard for residential central air conditioners and heat pumps. The Administration recently proposed rolling back the standard issued in January from SEER 13 to SEER 12. The controversy over the residential air conditioner standard will continue through this summer as DOE's extended rulemaking process coincides with likely electric reliability problems and surging prices in the west. Stepping up from SEER 12 to 13 will cut peak electricity demand by 18,000 MW once the standard is fully phased in and cut consumer electricity bills by over $18 billion over the next 30 years. This is one of the most important steps the Federal government can take to help California and other states avoid future power shortages.

ACEEE estimates that these three steps can cost-effectively reduce energy use in 2020 by 1.0 quad, nearly a 1% reduction in projected U.S. energy use. Consumers and businesses would see their energy bills decline by approximately $7 billion per year by 2020. Savings in 2010 would be a little less than half this amount.

Conclusion

ACEEE and our public interest allies are not the only organizations suggesting that national policy makers should increase support for and adopt new policies to raise energy efficiency. The Council on Foreign Relations convened an independent task force that just completed an in-depth report on our energy challenges and what should be done about them.¹² The Council concludes, "Energy policy has underplayed energy efficiency and demand-management measures for two decades." "Take a proactive government position on demand management." and "Review and establish new and stricter CAFE mileage standards, especially for light trucks." This is not the Sierra Club speaking, it's the Council on Foreign Relations.

Ten years ago the previous Bush Administration issued its National Energy Strategy. It gave considerable priority to greater energy efficiency and called for expansion of energy efficiency R&D and technology deployment programs, new policies to stimulate utility energy efficiency programs, establishing new appliance and equipment energy efficiency standards, and new federal incentives to increase energy efficiency.¹³ Many of these proposals were incorporated in the Energy Policy Act of 1992, and the budget for and impacts of DOE's energy efficiency programs rose throughout the previous Bush Administration.

To cite one other example, the PCAST report mentioned above recommended doubling DOE's energy efficiency R&D programs between FY1998 and FY2003, and estimated that this investment could produce a 40 to 1 return for the nation.¹⁴ The Congress increased funding for DOE's energy efficiency programs about 30% during the past three years, but this falls well short of the doubling called for by the PCAST. The PCAST panel that produced this report consisted mainly of distinguished academics and private sector executives.

Thus, support for increasing federal funding for and enacting new policies to improve energy efficiency is very broad. The current Bush Administration should make improving energy efficiency a cornerstone of its energy strategy. But if the Bush Administration fails to do so, the Congress should insist that energy efficiency be properly valued and strongly supported in new energy legislation and in appropriations for energy programs.

That concludes my testimony. Thank you for the opportunity to present these views.

¹ Scenarios for a Clean Energy Future. Interlaboratory Working Group on Energy-Efficient and Clean-Energy Technologies, U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Nov. 2000.

² H. Geller, S. Bernow, and W. Dougherty. Meeting America's Kyoto Protocol Target: Policies and Impacts. American Council for an Energy-Efficient Economy, Washington, DC, Dec. 1999.

³ President's Committee of Advisors on Science and Technology, Panel on Energy Research and Development. Federal Energy Research and Development for the Challenges of the Twenty-First Century. Executive Office of the President, Nov. 1997.

⁴ Clean Energy Partnerships: A Decade of Success. DOE/EE-0213. Office of Energy Efficiency and Renewable Energy, U.S. Department of Energy, Washington, DC. March 2000.

⁵ "Impacts: Turning Industry Visions into Reality.". DOE/EE-0240, Office of Industrial Technologies, U.S. Department of Energy, Washington, DC. Jan. 2001.

⁶ J. DeCicco, F. An, and M. Ross. Technical Options for Improving the Fuel Economy of U.S. Cars and Light Trucks by 2010-2015. American Council for an Energy-Efficient Economy, Washington, DC. April, 2001. Also, J. Mark. Greener SUVs: A Blueprint for Cleaner, More Efficient Light Trucks. Union of Concerned Scientists, Cammbridge, MA. 1999.

⁷ H. Geller, Strategies for Reducing Oil Imports: Expanding Oil Production vs. Increasing Vehicle Efficiency. American Council for an Energy-Efficient Economy, Washington, DC. April 2001.

⁸ ibid.

⁹ S. Nadel and M. Kushler. Public Benefit Funds: A Key Strategy for Advancing Energy Efficiency. The Electricity Journal. Oct., 2000, pp. 74-84.

¹⁰ H. Geller, S. Bernow, and W. Dougherty, Meeting America's Kyoto Protocol Target: Policies and Impacts. American Council for an Energy-Efficient Economy, Washington, DC. Dec. 1999.

¹¹ H.Geller, T. Kubo, and S. Nadel. Overall Savings from Federal Appliance and Equipment Efficiency Standards. American Council for an Energy-Efficient Economy, Washington, DC. Feb. 2001.

¹² Strategic Energy Policy Challenges for the 21st Century. Council on Foreign Relations, Washington, DC, 2001 forthcoming.

¹³ National Energy Strategy: Powerful Ideas for America. U.S. Government Printing Office, Washington, DC. Feb. 1991.

¹⁴ PCAST, op cit.