Energy Efficiency: The Best Medicine for High Gas Bills

Blog Post | January 02, 2004 - 7:00 pm

Natural gas is coming into sharp focus as the nation's #1 energy policy issue. While electricity was on the front page during the 2000-2001 California crisis and the August 2003 blackout, electricity prices now are mostly stable. Oil prices, while they rose somewhat during the Iraq war, have not generated the economic disaster they did in the 1970s. But natural gas prices have risen to record levels, and show signs of staying high for years to come.

Beyond just seasonal volatility, this upward trend in natural gas prices reflects a structural shift in U.S. natural gas markets. Our traditional gas fields are unable to keep up with rising gas demand; newer gas sources are more expensive, and will take time to bring on-line. The result is a tight market with high and volatile prices that drive up home heating bills and hurt the economy. Already, thousands of jobs are being lost as gas-dependent factories in the chemical and fertilizer industries close down.

The natural gas problem has risen to the attention of the highest levels of government, including the Chairman of the Federal Reserve, who testified in Congress this year that the gas situation bears serious threats to the economy. Energy Secretary Abraham convened a Natural Gas Summit in June in response to the incipient crisis. While a mild summer allowed gas companies to recharge some of their storage capacity, the winter heating season has sent prices back up again. This pattern shows no sign of abating for the next several years.

Energy efficiency is a key remedy to the natural gas problem. ACEEE recently conducted an Energy Foundation-funded study that calculated the price impacts of small gains in natural gas end-use efficiency. The study, which can be downloaded for free at http://www.aceee.org/energy/efnatgas-study.htm, found that reducing gas demand by as little as 2% would cut wholesale gas prices by about 20% over the crucial next five years. This would save over $100 billion in consumer gas bills (averaging about $100 per year for a typical home). The report also showed that saving electricity, because so much of it is generated by natural gas, has a powerful effect on gas demand.

To get these savings, ACEEE recommends a set of proven policies that for a total outlay of about $7 billion over five years would leverage $30 billion in efficiency investments. These policies include appliance standards; building codes; public benefits funds; efficiency performance targets for utilities; portfolio standards and other support for efficient, clean power generation; and increased research, development, and deployment (RD&D) funding for efficient technology.

National policymakers, while they have agreed with ACEEE's findings, have not taken the needed action to gain the benefits of energy efficiency. The National Petroleum Council's September report on natural gas recommended energy efficiency as a key element of a balanced natural gas policy. However, the report is not very specific on the kinds of policies listed above. Moreover, the energy bill now pending in Congress falls short on most of these policies. The federal government has largely failed so far to use energy efficiency as an effective response to the natural gas problem.

The failure of federal leadership leaves the field open to states. ACEEE's analysis shows that a vigorous efficiency response, even on a regional basis, would affect gas prices. We therefore encourage states to take the initiative and launch or ramp up programs aimed at saving natural gas, either directly or through electricity savings. Toward this end, we have prepared another report that describes leading natural gas efficiency programs states can use as models. This report, which can be downloaded for free at http://www.aceee.org/pubs/u035.htm, summarizes 30 different programs from 13 different states, in 12 categories ranging from low-income residential programs to industrial "custom" efficiency programs. The report also identifies the policy mechanisms used to require/encourage gas utility energy efficiency programs in eight leading states and one Canadian province.

On a broader basis, we have also recently issued a report on leading state energy efficiency policies, which can be downloaded for free at http://www.aceee.org/pubs/e031full.pdf. Both of these reports contain practical resources states can use to put energy efficiency to work for lower gas bills.