Alliance Webinar on Waxman-Markey Bill

On Wednesday May 27, the Alliance Policy Team held a webinar for Alliance Associates on the American Clean Energy and Security Act (ACES) of 2009, the climate and energy bill that was favorably reported on May 21, 2009 by the House Energy and Commerce Committee.

Senior Vice-President for Policy and Research Joe Loper opened with an overview of the carbon cap mechanism, explaining how the price on carbon will affect energy demand. Director of Policy Lowell Ungar presented on the energy efficiency policies in the bill, honing in on the building energy codes provisions. Concluding the session was Director of Government Relations Brad Penney who discussed the bill’s energy efficiency funding.

• General Summary and Analysis: A Price on Carbon, Joe Loper (250 kB PDF)
• Complementary Energy Efficiency Policies, Lowell Ungar (250 kB PDF)
• Complementary Energy Efficiency Funding, Brad Penney (250 kB PDF)

A Price on Carbon

In his assessment of ACES, Loper concluded that, although imperfect from the Alliance perspective, the bill results from mostly reasonable compromises that were necessary to achieve consensus. "It is one of the smartest pieces of legislation I’ve seen in 18 years,” he declared. Among the topics discussed in Loper's presentation were:

• The Emissions Cap
  The emissions cap calls for an 83 percent reduction in covered greenhouse gas emissions from 2005 levels by 2050. The cap applies to 85 percent of economy-wide emissions and the legislation may affect more than 85 percent of emissions since it gives the Environmental Protection Agency (EPA) the latitude to regulate emissions that fall outside the cap-and-trade program.
• Effect on Energy Demand
  Loper explained that a strong price signal on carbon will reduce energy demand, especially in the long-term. The EPA has estimated (based on an earlier draft of ACES) that the cap-and-trade policy alone could result in a 17 percent decrease in energy demand from projected levels by 2050.
• Cost Controls
  The Alliance has “no problem with trying to put cost controls in this legislation,” explained Loper. ACES provisions that attempt to shield consumers from increases in energy prices will not dampen the bill’s capacity to reduce emissions. However, the debate should recognize that cost control measures don’t necessarily decrease the overall cost to the economy of abating emissions – in fact, they can increase the abatement cost.
• Investment in Energy Efficiency
  Loper emphasized the potential of energy efficiency to lower the price of emissions allowances by lowering demand for energy. He noted that, in a study of hypothetical energy efficiency funding scenarios, the EPA has estimated that if 12.5 percent of emissions allowances were spent on improving energy efficiency, allowances prices would be approximately 10 percent lower than otherwise. Energy efficiency funding totals only 3-6 percent of total allowance value in ACES. A possible source of additional energy efficiency funding is the electric utility allocation, which is intended to ease the burden of electricity consumers. If utilities use the funds for customer energy efficiency improvements, customer bills can be lowered without muting the carbon price signal.
• Offsets
  According to Loper, of all the major provisions in the bill, the offsets provisions are the most likely to undermine ACES’s carbon reduction goals. Under ACES, the percentage of allowances that covered entities can use to offset emissions through domestic and international projects implemented outside the scope of the cap is large, starting at about 30 percent and increasing to more than 60 percent in 2050. Our capacity to measure and verify claimed emission reductions achieved through offsets, and to ensure those reductions would not have occurred anyway, is limited. If the claimed savings are not real, this cost control mechanism would undermine the stringency of the cap, resulting in higher (not lower) abatement cost and failure to achieve the emission reductions targeted by the bill. Additionally, international offsets may pose a barrier to future global climate accords. Through offsets, covered entities pick the “lowest hanging fruit” – the most cost-effective abatement projects – leaving other nations fewer easy abatement options to pursue under a climate agreement, and therefore making it less attractive for them to enter into such agreements.

Complementary Policies

In his presentation Lowell Ungar explained that ACES would establish many energy policies that, in an ordinary energy bill, would serve to reduce energy consumption/carbon emissions from otherwise projected levels. Because ACES contains a cap-and-trade mechanism, however, the emissions reduction is certain and the policies will instead serve to lower the cost of the reduction.

• Building Energy Codes
  Under ACES, the International Code Council (ICC) and the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE), who currently develop model building energy codes and standards in the United States, would be given the opportunity to develop new model codes that meet aggressive standards – including a standard of30 percent savings within one year of enactment and 50 percent savings by 2014 and 2015, for residential and commercial buildings respectively. It directs DOE to adopt the codes set by ICC and ASHRAE if they meet the stringent goals. However, if the ICC and ASHRAE do not develop model codes that meet these goals, ACES directs DOE to set the code itself. ACES also requires states to ensure the adoption of the model codes within one year of their adoption, and, some years after enactment, to achieve 90 percent compliance with the codes within two additional years.
  Ungar said that it will be challenging for the model codes to meet these high levels of energy savings, but a different provision in ACES will help to make it more possible. A portion of Section 213 of ACES, which the Alliance also strongly advocated, would provide the building energy codes more flexibility to achieve savings from equipment as well as from the building "envelope."
• Appliance Standards
  ACES contains provisions that set energy standards on several new products, including water dispensers, hot food holding cabinets, portable electric spas, gas- and oil-fired commercial warm air furnaces and several categories of lighting. According to Ungar, the most important standards are those relating to outdoor lighting.
• Renewable Electricity Standard
  ACES's renewable electricity standard (RES) requires electric utilities to meet 20 percent of their demand through renewable sources by 2020. Five percent of demand (25 percent of the RES requirement) may be met through energy efficiency rather than renewable sources, and governors may request that their states’ utilities be permitted to meet an additional 3 percent of demand (an additional 15 percent of the RES requirement) through energy efficiency.
• Transportation
  ACES contains several provisions promoting electric vehicles and infrastructure to support them; requiring DOE to set standards for light duty vehicles, trucks, trains, ships and aircraft; and requiring local governments to adopt goals and plans for transportation emissions reductions.

Complementary Energy Efficiency Funding

Penney presented the Alliance’s estimates of ACES's total energy efficiency funding. There is a wide range in the estimates: in many cases energy efficiency shares funding pools with renewable energy and smart grid efforts, and discretion is given to states and local governments to decide where funding is best directed. Penney estimates that overall between three and six percent of the value of emissions allowances would be allocated for energy efficiency. Based on EPA estimates of allowance values, energy efficiency is eligible for a maximum of about $166 billion in allowances over the duration of Waxman-Markey.

• SEED Funds
  The largest pool of allowances through which energy efficiency may be funded is the State Energy and Environmental Development (SEED) Accounts. 9.5 percent of emissions allowances will be allocated to states and managed by State Energy Offices, who can direct them toward a number of specified energy efficiency and renewable energy programs. According to Penney, the average annual energy efficiency funding through SEED could be as low as $730 million or as high as $2.9 billion.
• Natural Gas Utilities’ Energy Efficiency Spending
  ACES allocates 9 percent of emissions allowances to natural gas utilities from 2016 to 2025 (and declining amounts through 2029) and requires them to use one-third of those allowances for energy efficiency programs. Penney expects this provision will provide an average of $1.8 billion per year from 2016 to 2029. He noted that the Energy Efficiency Coalition, led by the Alliance, may offer a friendly amendment on the House floor extending this requirement to electric utilities, who would receive 43.75 percent of allowances in 2012-2013 (and declining amounts through 2029).
• Additional Emissions Allowance Funding Sources
  Penney highlighted several other significant allowance allocations for energy efficiency within ACES. 1.9 percent of emissions allowances will be allocated to states based on their residential and commercial consumption of home heating oil/propane (and declining amounts through 2029); one-half of the allowance value must fund energy efficiency. 0.5 percent of emissions allowances (about $360 million annually) would support building energy code development and enforcement. ACES directs DOE to establish a Clean Energy Innovation Center for energy-efficient building systems and designs, which will be funded by about 0.19 percent of emissions allowances, or about $140 million annually.
• Additional Authorizations
  ACES contains authorization funding for energy efficiency programs not accounted for by distribution of emissions allowances, such as plug-in electric vehicle technology deployment; smart grid; transportation planning; industrial energy efficiency and waste-heat recovery; and low-income energy efficiency. Also of interest is the potential funding from the renewable electricity standard: if adopting renewable generation and/or implementing energy efficiency under the RES proves too expensive, utilities can choose to pay $25 per megawatt-hour instead. The proceeds will be directed toward energy efficiency and renewable energy programs in the utility's state.

Our thanks to all who participated attended the webinar; we hope you found the discussion informative. So that we can further improve our education efforts, we ask that you please take a moment to fill out a brief, five-question survey. Thank you for your feedback!