Energy Efficiency as the Primary Cost-containment Tool in Cap & Trade

April 23, 2009

RE: Energy Efficiency as the Primary Cost-containment Tool in Cap & Trade  

Dear Chairmen Waxman and Markey and Ranking Members Barton and Upton: 

We write in support of the American Clean Energy and Security Act of 2009 (ACES) discussion draft released on March 31st and to urge a robust allocation of allowances to energy efficiency.  ACES lays the groundwork for America’s transition to a clean energy economy that will create millions of new clean energy jobs, save consumers hundreds of billions of dollars, enhance our country’s energy independence, and prevent the worst consequences of global warming.  The single most important thing Congress can do to achieve these goals at the least cost is to include provisions that will dramatically scale up energy efficiency.

Lowering energy demand through efficiency investments decreases the price of electricity and other fuels, lowers carbon prices, and reduces the cost of cap and trade for all residential, commercial and industrial energy consumers.  And saving energy is much cheaper than generating it – in the case of electricity, efficiency typically costs about 3 cents per kilowatt-hour, compared to 6 to 12 cents for generating electricity.  Scaling up efficiency will also create new jobs because it is more labor intensive to weatherize homes, retrofit buildings and upgrade antiquated air conditioning systems than to operate power plants.  In order to contain the costs of cap and trade approximately 26 percent of allowance value should be allocated and auctioned to expand both state and federal energy efficiency programs. 

Member states of the Regional Greenhouse Gas Initiative (RGGI) prudently chose energy efficiency as the cornerstone of their efforts to build a low cost cap and trade program.  The 10 participating states invest more than 70 percent of auction revenues in energy efficiency, with the majority invested in existing, state-PUC approved efficiency programs.  These comprehensive programs for all customers (low-income, residential, commercial, and industrial) are administered by utilities, states, or third parties and deliver savings of approximately $3 for every $1 invested.  These well-designed programs are efficiently implemented, cost-effective, and provide existing channels to rapidly increase investments in low-cost efficiency.  The RGGI states’ modeling shows that these investments will lower the average residential customer’s energy bill by over $100 per year compared to what it would be in the absence of a pollution cap.

The ACES draft has adopted important efficiency provisions that will similarly reduce costs for consumers.  We strongly support the Best in Class Appliance Deployment (BICAD) and building efficiency programs such as Retrofit for Energy and Environmental Performance (REEP), the Greater Energy Efficiency in Building Codes provision, and other efficiency elements.  We believe a robust allocation for these programs is appropriate.  However these programs will only capture a fraction of the cost-effective energy efficiency available.  It is critical that Congress contain costs and protect consumers by promoting investment in all cost-effective efficiency.  Based on our experience developing and expanding existing programs, we believe this would require investments that ramp-up to about $30 billion annually or approximately 26 percent of total allowances.  This figure is in line with recommendations of energy and climate advocates including ASE, ACEEE, AIA, EESI, ENE, JCI, NAESCO, NRDC, and the Real Estate Roundtable.

The ACES draft does not yet include an allowance distribution proposal, but leaves open the possibility of allocating allowances to states and Local Distribution Companies (LDCs) for the purpose of cost-containment through energy efficiency.  We urge Committee Members to use either or both of these means to develop and expand cost-effective state-approved energy efficiency programs and policies.  The state-approved energy efficiency programs represent the core energy efficiency infrastructure available today.  Supporting state-level programs is particularly critical for the RGGI states that rely on regional carbon proceeds for expansion of their efficiency programs.  

Specifically, we recommend an allocation of at least 17 percent of federal cap & trade allowance value to state-approved efficiency programs, with: 

• All revenues invested in cost-effective efficiency programs for low-income, residential, commercial, and industrial customers and for all energy uses including electric, natural gas, heating oil, propane, etc., or used to advance cost-effective efficiency policies such as building energy codes, building energy labeling and appliance standards;
• Flexibility to use states agencies, utilities, and third parties as program administrator(s), building to the maximum extent possible on successful existing programs and administrators;
• Consistent reporting, evaluation, monitoring, and verification of program results including thorough documentation of energy and economic savings, emissions avoided, job creation, and cost-effectiveness; and 
• Allowance values to be distributed initially based on population and energy use, with a requirement to run cost-effective programs and authority for the Environmental Protection Agency to reward performance in reducing energy consumption and to provide more resources to those who have demonstrated the most effective use of the funds.

We also support allocating at least 9 percent of allowances to federal efficiency programs that exist or are authorized in the bill including: 

• Weatherization Assistance Program (WAP) and new low income programs;
• Building efficiency retrofit and best in class appliance deployment programs; 
• Building energy efficiency codes implementation and incentive funding;
• Efficiency research and development; and
• New federal building and appliance programs.

Investing cap and trade proceeds in energy efficiency lowers energy consumption, which reduces GHG emissions and the demand for carbon allowances. The result is a lower price for carbon allowances and lower overall cost of the cap and trade program. Many of these money- and energy-saving investments are impeded by significant market barriers, which must be overcome with targeted and well designed programs.
In the weeks ahead, Congress will make significant policy choices that influence the projected cost of a cap and trade program. We advocate for the low cost path – investing a substantial portion of allowance proceeds directly in energy efficiency to minimize the cost of the program.

We look forward to working together to ensure cap and trade is designed in a way that protects consumers, minimizes costs, and creates green jobs by investing at least 26 percent of allowance value in energy efficiency.

Sincerely,

• Alliance to Save Energy (ASE)
• American Council for an Energy-Efficient Economy (ACEEE)
• Environment Northeast (ENE)
• National Save Energy Coalition (SAVE)
• Natural Resource Defense Council (NRDC)
• Affordable Comfort, Inc (ACI)
• Alex Cheimet’s Massachusetts Super Insulation Project
• Alliance for Affordable Energy
• Appalachian Mountain Club (AMC)
• Applied Proactive Technologies, Inc.
• Association for Energy Affordability
• Atlantic Energy Concepts
• Bevilacqua-Knight, Inc. (BKi)
• Better Buildings Incorporated
• Birch Tree Capital, LLC
• BlueWave Strategies LLC
• Boston Climate Action Network
• Boston Technologies
• BP Consulting
• Building Performance Center, a division of Opportunity Council
• Building Performance Contractor’s Association of New York
• Building Performance Institute
• Bruce Edgerton (Reston, Virginia)
• California Building Performance Contractors Association
• CCI Energy LLC
• Celentano Energy Services
• Celtic Energy, Inc.
• Center for Applied Regional Studies
• Center for Ecological Technology
• Chrisner Group
• Civic Capital Group LLC
• Citizens for Pennsylvania’s Future (PennFuture)
• Clean Energy Coalition
• Clean Energy Venture Group
• Clean Water Action
• Clean Wisconsin
• CMC Energy Services
• Coconino County Sustainable Economic Development Initiative
• Community Environmental Center
• Connecticut Fund for the Environment
• Conservation Connection Consulting
• Conservation Consultants, Inc.
• Conservation Law Foundation
• Conservation Services Group (CSG)
• Conservation Solutions Corporation
• Dakota Resource Council
• Dundon Insulation, Inc.
• EAM Associates, Inc
• Ecos
• Efficiency First
• Electric & Gas Industries Association
• Energy Federation, Inc. (EFI)
• Energy Climate Solutions
• Energy and Resource Solutions
• Environment America
• Environment Maryland
• Environment Massachusetts
• Environment New Jersey
• Environmental Entrepreneurs (E2)
• Environmental Advocates of New York (EANY)
• Faith in Place
• Federal Performance Contracting Coalition
• Fluid Market Strategies, Inc
• Future of Energy
• Global Green USA
• Green Building Initiative
• GrEEncollaredu.net
• GreenHomes America
• HVAReducation.net
• Institute for Culture and Ecology
• Johnson Controls
• Lousiana CleanTech Network
• MaGrann Associates
• Maine Center for Economic Policy
• Manomet Center for Conservation Sciences
• Maureen Mulligan Communications Consulting
• Massachusetts Climate Action Network
• Michigan Environmental Council
• Midwest Energy Efficiency Alliance
• Mobern Lighting Company
• National Audubon Society
• National Association for State Community Services Programs
• Natural Resources Council of Maine
• New England Energy Management, Inc.
• New England Clean Energy Council (NECEC)
• New Jersey Natural Gas
• North American Energy Service Companies (NAESCO)
• North American Insulation Manufacturers Association (NAIMA)
• Northeast Energy Efficiency Council (NEEC)
• Northeast Energy Efficiency Council- New York
• Northeast Energy Efficiency Partnerships
• Optimal Energy, Inc.
• Pace Energy and Climate Center
• Polyisocyanurate Insulation Manufacturers Association (PIMA)
• Protestants For Common Good
• Respiratory Health Association of Metropolitan Chicago
• Schneider Electric
• Senergy Software Solutions, Inc.
• Serious Materials
• Sustainable New Energy
• Saunders Hotel Group
• The Commons
• The Energy Doctor, Irwin, PA
• The Linc Group
• The National Trust for Historic Preservation
• The Sierra Club
• TRC Energy Services
• Union of Concerned Scientists
• US Green Home, LLC
• Wisconsin CUB
• Wisconsin Environment