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Introduction
My name is Kateri Callahan and I serve as president of the Alliance to Save Energy ( Alliance ). The Alliance is a bipartisan, nonprofit coalition of business, government, environmental, and consumer leaders committed to promoting energy efficiency worldwide to achieve a healthier economy, a cleaner environment, and energy security. The Alliance was founded in 1977 by Senators Charles Percy (R-IL) and Hubert Humphrey (D-MN). The current Chair is Senator Byron Dorgan, and our Congressional Vice-Chairs include Senators Susan Collins, Jeff Bingaman, and James Jeffords and Representative Ed Markey. More than 75 companies and organizations currently support the Alliance as Associates, including the nation's leading energy efficiency firms, electric and gas utilities, and other companies committed to promoting sound energy use.
The Alliance has a long history of designing and evaluating energy efficiency programs in the U.S. and abroad. We also have a history of supporting efforts to promote energy efficiency that rely not only on federal policies, incentives and regulations, but also on partnerships between government and business and among various governments. The Alliance to Save Energy strongly supports the energy efficiency programs at the U.S. Agency for International Development (USAID). USAID plays a vital and unique role in supporting efforts to promote sustainable energy in developing countries based on partnerships with the private sector. USAID's funding for energy efficiency, renewable energy, and power sector reform helps to leverage millions of additional dollars in foundation, development bank, and other federal agency support. The Alliance appreciates and applauds this Subcommittee's support of these valuable activities and we urge the Subcommittee to continue funding these important, energy-saving activities.
This work done through USAID is critical to meeting the basic needs and improving the health of the people in those countries. It is equally critical to the global environment and to limiting global energy demand. And by working with the private sector to design and implement policies that break down barriers to energy efficiency activities, USAID has been instrumental in helping the U.S. energy efficiency industry enter new markets and further increase sales of its products.
The Alliance, through work funded in part by USAID, has had a great deal of success in bringing private-public partnerships to such countries as Brazil, India, Mexico, Ukraine, Serbia, South Africa and Thailand. Our work has clearly proven the USAID premise that a strong institutional framework for energy efficiency in developing countries creates jobs, reduces costs, and protects the environment. USAID's continued support is critical to the ability of the Alliance and other organizations to carry out their international mission and to leverage funding for these activities. Unfortunately, this work is being greatly weakened by deep cuts in USAID's support.
Decreasing U.S. investment in clean energy development
Funding for clean energy projects has been cut sharply by USAID. While a lack of transparency makes it difficult to establish a complete picture of clean energy funding, we recently learned that, overall, funding for USAID energy programs declined from $131 million in FY03 to $83 million in FY04, with a further cut to $76 million proposed for FY05. This would be a 42% cut in funds in just two years. The portion of that funding under Development Assistance would decline from $57 million in FY03 to $36 million in FY05.
The downward funding trend is typified by, but by no means confined to, the plight of the Economic Growth, Agriculture, and Trade Pillar's newly demoted energy team. Their funding for energy efficiency, renewable energy, and clean energy objectives was cut in half from $16 million in FY01 to $7.5 million in FY04 (and the FY05 request). These cuts have hindered the deployment of innovative energy solutions in developing countries, and have limited the U.S. government's ability to meet commitments it made on energy issues at the World Summit for Sustainable Development.
The other Bureaus and Missions have faced similar reductions in investments in energy efficiency. In many cases the cuts have been so deep that they have not only curtailed projects but also have harmed the infrastructure—the expertise, contacts, and organizational capacity—needed to do effective work in this area. With funding and management focus dissipating, missions such as Egypt are planning on eliminating their energy programs entirely, and many more, such as Nigeria , Indonesia , and Brazil , likely will be forced to curtail significantly their excellent work.
These deep cuts have occurred despite increased Congressional appropriations in this area.Because Congress recognizes the importance of clean energy assistance, recent appropriations bills have specified amounts to promote energy conservation, energy efficiency and clean energy programs, as well as climate change programs; this amount has risen from $155 million in FY02 to $175 million in FY03 to $180 million in FY04. As Congressional appropriations have grown, and USAID's spending on energy efficiency and renewable energy has shrunk, the agency has cast a wider net over which of its programs would be included under the appropriation. Such tangential activities as vaccination and other health programs have been included in this accounting because of their indirect link to combating the adverse effects of climate change.
Increasing importance to the U.S.
We are especially troubled by the decrease in funding given the increasing importance to the U.S. of clean energy development worldwide. Current high oil prices dramatically demonstrate our economy's dependence on both supply and demand in a global market. As we work to try to ensure our economy has adequate, reliable energy supplies, we cannot forget that the energy use of other countries directly impacts both the supply and price of our energy resources here at home. Due to the reality of a single integrated global petroleum market, USAID's energy efficiency programs directly benefit U.S. consumers. By lessening demand for oil abroad, we are helping to loosen supply and hold down price pressures domestically. Quite simply, lowered oil demand in Madras helps truckers in Mobile. Lowered oil use in San Salvador helps drivers in San Francisco.
In addition, security issues both domestically and among our allies and trading partners are tied to global energy development. Energy efficiency in developing countries is a vital tool in reducing the global economy's dependence on oil from unstable regions. It also helps create the jobs and improve the services required to meet basic human aspirations in developing countries. As our focus on homeland security has grown, a significantly higher investment in energy efficiency becomes ever more important as a mechanism for helping to stabilize world growth in energy demand.
USAID's energy development work also helps create jobs in the growing energy efficiency industry in the U.S. In building the potential of local energy efficiency private sector partners, USAID has developed critical ties with the U.S. energy efficiency industry. The U.S. Asian Environmental Partnership alone has been responsible for transferring over $1 billion worth of goods and services to developing countries since 1992. USAID has supported the development of Energy Efficiency Business Councils in India , Mexico , Ghana and Thailand . These councils combine the resources of many smaller companies to jointly promote the benefits of energy efficiency to end-users. In many cases, energy efficiency companies from the U.S. have lent their expertise to train end users on energy-efficient technologies, expanding their markets in the process. These councils have begun to break down barriers to implementing energy efficiency including reducing tariffs on imported energy efficient goods.
Impact on developing countries
Although USAID's energy programs do not often receive the visibility of the Agency's more "traditional" development programs like child survival, they are crucial to the goal of sustainable development in the poorest regions of the world. Reasonably priced, clean, and reliable energy supplies often play an equally important role in the lives of the world's poorest citizens by reducing respiratory illnesses and improving access to heating, lighting, refrigeration, and clean water. Whether it is clean fuel for cooking in India that helps prevent some of the approximately 550,000 deaths per year of women and children from atrocious indoor air quality, electricity for refrigeration in tropical climates that provides the vital link in the vaccination cold chain, affordable heat for Russia that keeps people from freezing to death, or the energy needed to pump and clean water to satisfy the basic subsistence needs of the over 2 billion who currently have no access to this basic necessity, energy plays a very central role in the lives of all the world's inhabitants.
Unfortunately, energy supplies in most of the world's countries are not always reliable or safe. Power plant emissions from the combustion of poor-quality coal have fouled not only the skies but the lungs of millions of Chinese; radiation from the failed Chernobyl nuclear reactor in Ukraine has sickened a generation of children; and drought conditions in many parts of Africa have left hydropower turbines quiet and cities dark
In addition, explosive economic growth in most of the developing world, especially Asia , has precipitated a surge in demand for energy supplies. Over two billion of the world's people lack access to reliable supplies of fuel for cooking, electricity for rudimentary lighting and refrigeration, or clean drinking water. Residents in some of the developing world's largest cities continue to experience rolling electricity brownouts, blackouts, and inadequate access to the power grid. These electricity shortages lead to constraints on industry and the commercial sector that stifle economic growth, limit the potential of U.S. foreign trade, and lead to further hardships from unemployment and foregone export revenues.
Energy efficiency provides an attractive solution to help address these problems. USAID's energy conservation programs in developing countries not only are a relatively low-cost alternative to the construction of new hydroelectric or fossil fuel plants, but also can reduce the risk of electricity shortages and increase the competitiveness of the industrial sector.
Successful USAID Energy Programs
While the Alliance to Save Energy supports numerous energy efficiency programs supported by USAID, the examples of successes we know the most about are those in which we participated.
Three years ago, USAID and the Alliance began exploring energy efficiency opportunities in the municipal water sector through an initiative we dubbed the “Watergy” Program. The sector was found to be ripe with opportunities to save energy. As the Alliance , with the direct support of USAID, has worked with municipal water utilities around the world to enable them to reap the potential of these energy savings, a number of other extremely positive outcomes of the work became apparent. As it turned out, saving energy in water systems often translates into reducing water waste—decreasing the stress on often over-burdened local water supplies. Maybe even more significantly, the efforts of USAID through Watergy also have dramatically improved service quality, increased access to water, and reduced costs to water utilities. In Fortaleza , Brazil , a city of two million people in the arid northeast region of that country, efficiency projects allowed the utility to provide service to an additional, estimated 350,000 people who previously had not had in-home water connections. Impressively and importantly, this was achieved without increasing the amount of water entering the system, and while reducing total energy consumption.
In Veracruz , Mexico, energy efficiency improvements that were identified through the Watergy Program have allowed the local water company to reduce its electricity consumption by 22%. The water company reinvested the savings in additional projects that are projected to have a similar result by the end of this calendar year. Customer complaints concerning poor water pressure, once the norm, are no longer lodged, even though the utility has raised its rates. Now, between reduced energy costs and the increase in tariffs, the water utility has gone from being unable to meet even basic operation and maintenance costs without a large state subsidy, to actually having enough revenue to invest in new state-of-the-art control systems that will lead to additional savings and service improvements. According to Ing. Efrain Deschamps, General Manager, Sistema de Agua y Saneamiento de Veracruz (SAS):
“The integrated concept of efficiency that Watergy offered has motivated SAS to not only achieve savings but to also improve the service in specific neighborhoods within our service area ( specifically in the Volcanes neighborhood). Through this Watergy approach we have been able to eliminate customer complaints while at the same time saving almost 50% over the amount of energy previously consumed by operations in these areas…”
Potentially the most exciting development from the Watergy work is that the private sector, sensing the pent-up demand for energy efficiency goods and services, has contributed money, time, and equipment to demonstrate the potential in various countries around the world. USAID also has leveraged millions of dollars in multilateral development bank loans that are now including major efficiency components in water sector investments. The Alliance now has begun to share its experience with water utilities in the U.S. who are interesting in implementing energy efficiency programs of their own.
Another example of USAID creating replicable development models working with the private sector can be found in the Alliance's work in Bulgaria. The Alliance 's Municipal Network for Energy Efficiency (MUNEE) program conducted training for several Bulgarian cities on how to negotiate and implement Energy Service Company Contracts, using models from the Czech Republic. Energy Service Companies (ESCOs), like those that work to reduce the U.S. Government's energy consumption, pay for energy saving measures upfront in return for a portion of the energy savings. The MUNEE training has already led to several successful contracts:
- One of the first tenders for municipal ESCO services in Bulgaria was issued by the City of Russe for street lighting upgrades, and the Alliance expects that two more ESCO projects will be signed soon, both with Czech-based ESCOs.
- An international ESCO – EETEK/FondElec –developed another energy services contract to rehabilitate boilers in several municipal buildings in the City of Novi Pazar, the first of many projects in a developing FondElec pipeline in Bulgaria.
- Another municipal government participating in the training – Dobrich – also completed a third-party financing contract. The agreement was signed with the Sofia-based Technoterm Engineering Ltd to retrofit 42 municipal buildings. Much of the equipment will be provided on lease, making it easier on the city's budget. The buildings include city offices, 17 schools, and 16 kindergartens. The project will improve weatherization and install new gas-fired boilers, automatic heat-control systems, roof insulation, and energy-efficient lights.
Just as important, the developer of the Russe project has expressed satisfaction with the project and is looking for other municipalities to replicate the city-wide street lighting retrofits. This is another sign that the market for municipal energy efficiency is accelerating in Bulgaria . So far, MUNEE has helped generate about $3.5 million in private investments in Bulgaria that have helped improve critical municipal services like heating in kindergartens, while saving the city governments millions of dollars.
These examples clearly demonstrate how USAID's programs serve a unique and valuable function in helping policymakers and other stakeholders in developing countries adopt sustainable energy practices and programs. The Agency's programs have been instrumental not only in replicating the broad energy lessons of the United States, such as the importance of integrated resource planning, competition, and proper pricing, but also in demonstrating more specific policy measures such as energy-efficient appliance standards and model building codes.
USAID's advantage over other development vehicles in the energy efficiency sphere is two-fold. USAID clearly understands the role of capacity building as the basis for any sustainable energy efficiency program, and USAID also recognizes the overwhelming potential of the private sector to drive the energy efficiency development agenda.
Recommendations
The Alliance to Save Energy urges the Subcommittee to consider the following recommendations to assure that USAID continues and enhances its important work to promote development through energy efficiency:
- Increase, significantly, fiscal year 2005 funding for USAID's energy efficiency programs that address the economic and energy needs of both the U.S. and developing nations.
- Specify funding for energy efficiency and other clean energy programs, either through a specific line item or report language , and clarify what type of activities can be conducted through such programs . As described above, USAID's energy programs have been shrinking even as Congress has directed more funding for energy efficiency, clean energy, and combating Global Climate Change.
- Integrate specified funds into the budget for the various bureaus and offices in a transparent manner. In addition, we ask the Subcommittee to provide USAID with the full-time employees and funds to administer and manage their energy programs efficiently. Without an effective organization in Washington and in the field, programmatic resources will not be used to their full advantage.
- Assure that all missions have an energy efficiency target based on the potential of energy efficiency to help meet the current goals of the mission. Currently, only a small fraction of USAID missions have energy efficiency strategic objectives. Energy efficiency should not be a lesser priority than other energy programs such as restructuring and privatization; rather, energy efficiency should be fully integrated with both the policy and the regulatory components of USAID's work.
- Broaden the scope of efficiency programs by increasing funding in the transportation, industrial, and water sectors. Key energy efficiency opportunities are being missed in these key, energy end-use sectors due to a lack of funds. These sectors not only are pivotal in any true development model and energy efficiency strategy, but also represent major areas of potential U.S. investment and trade. In addition, funding is needed for the harmonization of standards and equipment labels and ensuring cohesion of these labels with such successful efforts in the US . USAID should also be encouraged to prepare investment grade projects to submit to multilateral development banks and other donors for work with the missions on energy efficiency.
Conclusion
Vigorous Congressional support for USAID's energy programs will leverage resources from others to help ensure that countries such as Mexico , India , Brazil , and South Africa are able to develop their economies in a manner that is environmentally sustainable, and to take on additional responsibilities to curb greenhouse gas emissions and environmental degradation. Also, by reducing energy waste around the world, the U.S. can more easily stabilize global energy markets, and guarantee its domestic energy availability.
Thank you again for providing the Alliance to Save Energy with the opportunity to testify and for the continuing support of the Subcommittee for USAID's energy efficiency programs.
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