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Do you think state regulated energy efficiency requirements are effective?


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  • Oct 11, 2021

I was reading this story about the rollback of energy efficiency standards in Ohio where recently released reports make the claim that rolling back such standards are negatively impacting customers who otherwise benefit from the measures. There are lots of different mechanisms to push energy efficiency-- regulations like this one or market mechanisms or otherwise.

So I wanted to pose the question to Energy Central's EE professionals: do you think efficiency regulations from states are overall beneficial? Or should efficiency measures come at the behest of the utilities without political intervention? 

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The heavy hand of the unelected bureaucracy inevitably produces unintended consequences while wasting money. Set voluntary goals and provide tax incentives. Fund the tax incentives by reducing government spending. The money saved by homes and businesses flows back into the economy and the existing taxing structure. 
The local utility companies should not be involved because the effort inevitably takes money from consumers in general to specifically subsidize special interest groups. Also just turns into another profit center.

Robert Borlick's picture
Robert Borlick on Dec 15, 2021

I disagree.  Utilities are in a unique position to promote desirable energy efficiency programs because of their close relationships with their customers.


There are at least two major barriers to cost-beneficial energy efficiency: (1) customer's lack of knowledge and (2) customers' lack of capital to make the needed behind-the-meter investments. 


Utilities can overcome the first barrier by sponsoring customer education programs and energy audits of customer premises.  Utilities can help overcome the second barrier by funding cost-beneficial energy efficiency investments through low-interest rate loads to their customers who pay them off over extended time periods (e.g., 15 years) through surcharges on their electric bills.  


It is possible that these two utility-based actions can lower electric rates for all of their customers - not just the ones participating in the EE programs.  But even if they modestly increase rates (which can happen if some of the benefits derived are externalities, such as generator emissions reductions) the overall societal outcome is still positive.  

Are energy efficiency requirements effective? Yes. Are they efficient?  Not necessarily.  As with anything, one can overinvest in energy efficiency and waste ratepayers’ money.  I think California has wasted money on conservation through their stupid “Loading Order” policy.  Any competent economist understands that the order in which you add resources does not matter so long as you add the right amounts of each type of resource.  

Politicians are not competent to decide how much energy efficiency is optimal. 

Efficiency regulations make sense to occur at the state/federal level because pricing regulations related to environment, health, and power occur at the state/federal level. Our selection and prioritization of energy efficiency projects improves when as many of the costs and benefits are factored into selecting projects to generate the best impacts while conveying the costs of these projects as directly as possible to the beneficiaries.


One drawback of state efficiency regulations is the way in which efficiency program costs are traditionally billed to residential customers based on usage. The amount of energy used is a poor indicator of the amount of energy savings potential for a customer as well as a poor indicator of the ability to afford the energy efficiency improvements or program charges. What can end up happening is that low-income customers with less efficient equipment pay higher efficiency program charges on their already higher-than-average bills but they are also less likely to be able to take advantage of many of the energy efficiency incentives offered (because whole-home weatherization programs targeting help to lower-income households may be unable to serve many customers relative to the number of customers needing and wanting improvements) even though they would often benefit the most. In this way, costs are inefficiently allocated.


You also don't see the non-energy benefits (NEBs) often priced into these projects at the home or community level. Lower-income households often experience much greater benefits from improvements in health and lower maintenance costs, yet the costs to cover these improvements often just come from energy efficiency funding. In this way, the benefits are inefficiently valued.


The farther the beneficiaries are separated from the costs, the more inefficiencies result. There have been lots of great individual efforts to combine community, state, and federal funding to support benefits such as health and job creation, but I think you'll see a lot more thought going into scalable systems of directing multiple sources of funding towards energy efficiency projects over the next two years. I think you'll also see more incorporation of energy efficiency funding into integrated resource planning for utilities, but we should be careful that the value of NEBs aren't lost by treating EE the same as any energy resource.


In summary, a state and/or federally regulated system should ideally try to couple the total value of energy benefits and NEBs with the allocation of project costs to create more efficient markets for project selection and payment in a scalable way to empower market actors without relying on governments to individually select and fund projects. There is important work to do in this area and we're going to help a lot of people by figuring it out.

all utility efficiency programs and standards are subject to political intervention by permanent regulatory agencies.  This has resulted in billions of utility dollars spent to incentivize the purchase of more efficient products.  Despite this, energy demand has reached a non-sustainable level.

One failure of this system is that space conditioning energy is still the largest part of residential energy expense, and government incentives don't address the energy that's wasted through thermal leakage.

As a result, my idea for cutting this waste without subsidy   remains obscure.

From my point of view as a whole, the efficiency regulations are beneficial, and so as to be clearer, I would like to share with you the first paragraph of my manuscript introduction, at this moment under review by an energy journal, which could be useful for you, according to your posted questions. Then, after reading it, you could provide me your comments and whether this explanation answers to your questions:

 " Albeit the energy conservation and efficiency are conceptually different, the linkage between them is a fact. The first one is considered as satisfied, when the energy consumption growth is reduced, it’s mean from a physical measured parameter perspective. The reduction in terms of consumption implies an increasing productivity in any technological process involved, which directly address us to the saving as an equivalent concept. It’s worth noting that according to the energy efficiency point of view, energy intensity of technological process is to be reduced, taking special attention to keep on the industrials turns out and comfort levels unaffected. Moreover, the efficiency would be seen as an indicator of the coal, oil, natural gas, and biomass (such as wood) natural sources are rationally used, which in turn produces the same effect on secondary energy sources, i.e. steam and electricity. Additional added value is provided by the energy efficiency on countries economics resources and the environmental friendly increase sustainability. In nature, the energy use efficiency has well-established limits on their own; conversely to the major technological manufacturing processes with limits far away from those ones established naturally. Energy efficiency could be interpreted as a way to perform energy demanding processes with the lowest consumption to reach out the same results or functions"

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