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Industrial Energy Efficiency: Legislation Update

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Policy Summary
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Over the past 18 months, there has been a flurry of legislative activity intended to improve energy efficiency, strengthen core sectors of the U.S. economy, stimulate job growth and support national energy security efforts—all while reducing greenhouse gas emissions. This short primer is intended to highlight the prominent themes of prospective industrial energy policy as included in the multitude of federal energy and climate legislation that is currently “in play” on Capitol Hill.

Categorically, industrial provisions of active climate and energy bills can be organized into five broad buckets: facility modernization and energy efficiency; job growth and workforce training; equipment upgrades; research, development and deployment (R,D&D); and climate/emissions abatement. With the release of more than 10 energy-related bills in the last year and a half, this primer discusses a select group of high-impact industrial provisions in order to provide a sense of the legislative strategy that aims to reshape U.S. manufacturing in support of a clean energy economy. Provisions have been selected from the following suite of unresolved federal legislation:

Job Growth and Workforce Training

Job creation and retention has been at the leading edge of policy priorities since the economic recession greeted the Obama administration and the 111th Congress in early 2009. On the heels of the American Recovery and Reinvestment Act (ARRA)—which included $500 million to train American workers in green jobs, including manufacturing—job creation and workforce training remains a fundamental driver to economic recovery.

Under the American Clean Energy and Security (ACES) Act, $3.5 million was authorized to provide job training and outreach to promote the broader use of low-cost technologies, such as mechanical insulation.
A key provision introduced in the American Clean Energy Leadership Act (ACELA) proposes an expansion of the U.S. Department of Energy’s Industrial Assessment Center (IAC) program. IACs currently are housed within the engineering departments of 26 leading universities across the country, and pair engineering students with university faculty to conduct free energy savings assessments of small- and medium-size manufacturing facilities.

The Supply Star Act (SSA) also has included language to initiate education and training programs targeted at capturing energy efficiency opportunities across industrial supply chains.
As a corollary, discussions surrounding Sen. Harry Reid’s (D-N.V.) jobs bill offered strategic investment in plant conversion and construction for the manufacturers of clean energy technologies. Despite this provision not being included in the final draft of the jobs bill, this tactic has received broad support in advancing U.S. manufacturing competitiveness while concurrently stimulating the jobs market.

Facility Modernization and Energy Efficiency

U.S. manufacturing is experiencing ever-increasing competition from the global market, particularly from newly industrialized countries such as China, India, Brazil and South Korea. Imminent transition to a clean energy economy has set the scene for a concerted reinvestment in domestic manufacturing facilities to bolster the industrial sector as a backbone of the U.S. economy and the global market. Various strategies have been introduced on how to best modernize U.S. manufacturing facilities.

Under the American Clean Energy and Security Act (ACES) provisions exist to support an ANSI-approved industrial plant standard. Authorizations necessary to develop the standard were included.
In both the American Clean Energy Leadership Act (ACELA) and the Investments for Manufacturing Progress and Clean Technology (IMPACT) Act, policy makers opted for creating a revolving loan fund at the state level, intended to finance facility upgrades, implementation of advanced technology, and general plant modernization initiatives. Under ACELA, seed grants to capitalize revolving loan funds would be capped at $100 million. The IMPACT Act authorizes grants up to $500 million.

Lastly, the Supply Star Act (SSA), a bill focused on capturing supply chain efficiencies, has proposed a program housed within the U.S. Department of Energy to study and promote business-to-business best practices related to energy, water and natural resource conservation.

Cross-Cutting Equipment Upgrades

As policy makers attempt to craft meaningful policy mechanisms to deploy energy-efficient technologies and accelerate the turnover of inefficient capital equipment, they often look to cross-cutting technologies with the flexibility and market maturity to deliver significant energy savings across a number of sectors. Combined heat and power (CHP) systems, motors and industrial chillers are all examples of technologies that have made great advancements in energy efficiency, while also having a universal applicability to the industrial sector.
After the Department of Energy received more than $3.8 billion in project proposals for a $156 million funding solicitation subsidizing CHP systems under the American Recovery and Reinvestment Act, policy makers took a keen interest in the demonstrated capability for CHP and waste heat recovery to reduce energy consumption.

The Expanding Industrial Energy Efficiency Incentives (EIEE) Act aims to expand or establish energy efficiency tax credits in four key cross-cutting areas: 1) expanded CHP tax credits; 2) advanced motors; 3) advanced (non-CFC) chillers; and 4) industrial water processes.

Similarly, both ACES and ACELA authorize funding of an energy-efficient motor replacement program capitalized with $80 million in the first year (2011), then reduced by $5 million each year through 2015.

Research, Development and Deployment (RD&D)

Research, development and deployment are vital to the future health of U.S. industry, both from the deployment of advanced technologies in domestic manufacturing facilities, but also as a manufacturer of such equipment. As industrialized nations position themselves for a paradigm shift in energy delivery and consumption, research and development is seen as a direct corollary to future competitiveness.

Under ACELA, $500,000 cost-share grants were proposed at the state-level to fund public/private partnerships directed to develop, demonstrate and commercialize new industrial technologies.
ACELA also directs the U.S. Department of Energy to conduct a comprehensive assessment of cost-effective, energy-efficient industrial technologies having a low market penetration. This would provide policy makers with a suite of technology options from which develop incentive packages.

ACES includes a provision to establish a financial award program for innovative waste heat recovery projects for both electricity production, but also industrial thermal applications.
The American Power Act (APA) charges the National Industrial Innovation Institute to oversee research and development projects on behalf of the U.S. industrial sector, with energy efficiency, greenhouse gas emissions and competitiveness the core evaluative criteria. Universities, research entities and private companies would be eligible for funding under this program.

Climate/Emissions Abatement

Congress has been active over the past year crafting various policy packages to put a price on carbon, as well as both capping and reducing U.S. greenhouse gas emissions. However, in light of the current demeanor on Capitol Hill, it is widely acknowledged that meaningful climate legislation will not pass this calendar year. Nevertheless, four separate bills (CEJAP, ACES, APA, CLEAR) have introduced a carbon cap and trade scheme—albeit each uniquely distinct—providing a market mechanism to drive down greenhouse gas emissions among large emitters.

Of direct relevance to the industrial sector, each bill has defined large emitters as stationary sources emitting greater than 25,000 mtCO2e. Another commonality is tackling issues of manufacturing competitiveness among energy-intensive, trade exposed sectors. Each bill employs a slightly different approach, although prevailing strategies include a border adjustment tax on foreign imports and/or free carbon allowances allocated to predefined, energy-intensive industries.

With fewer than 30 days remaining the in the 2010 legislative calendar, both manufacturing and energy bills continue to be brought forward to demonstrate their sponsors’ priorities and policy approaches in providing federal assistance. On July 26, Sen. Carl Levin (D-Mich.), Chairman of the Ways and Means Committee, released a draft legislative text of the Domestic Manufacturing and Energy Jobs Act of 2010. This bill includes $6.5 billion in investment tax credits to spur modernization and retooling of U.S. manufacturing lines to produce advanced energy technologies. Additionally, the bill proposes to extend successful financing mechanisms, such as direct payment instead of tax credits, to stimulate investment in renewable energy and energy efficiency technologies.