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March 29, 2006: Efficiency Resource Standards Could Bring Substantial Savings

March 29, 2006
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WASHINGTON - An Energy Efficiency Resource Standard (EERS) could save as much energy as improving U.S. vehicles' fuel economy to 40 mpg, according to a report issued by the American Council for an Energy-Efficient Economy (ACEEE). The report, "Energy Efficiency Resource Standards: Experience and Recommendations," profiles energy efficiency resource standard policies in 10 states and four European countries, and concludes that implementation of similar policies at the federal level or in additional states could reduce nationwide energy use by nearly 5 percent in 2020 and save consumers and businesses about $170 billion from efficiency measures implemented over the 2007-2020 period.

"An EERS is perhaps the single most effective energy efficiency policy the federal government could adopt today," said ACEEE Executive Director Steven Nadel, lead author of the report. "To put these energy savings in perspective, they are about triple the energy efficiency savings of the Energy Policy Act of 2005 that was signed into law last summer."

An Energy Efficiency Resource Standard, according to the report, consists of electric and/or gas energy savings targets for utilities, with flexibility to achieve the target through a market-based trading system. EERS targets are achieved through end-user energy-saving improvements, aided and documented by utilities or other program operators. Distribution system efficiency improvements, combined heat and power (CHP) systems, and other high-efficiency distributed generation systems may be included as well. With the trading provision, a utility that saves more than its target could sell savings credits to utilities that fall short of their savings targets, permitting the market to produce the lowest-cost savings. To date, EERS programs are most commonly implemented at the state level but can also be implemented over smaller or wider areas.

EERS-like programs are now in operation in several states and countries:

  • Texas' electricity restructuring law created a requirement for electric utilities to offset 10 percent of their demand growth through end-use energy efficiency. According to evaluation documents, utilities in Texas have had no difficultly meeting their targets and are currently exceeding them.

  • Hawaii and Nevada recently expanded their renewable portfolio standards to include energy efficiency.

  • Connecticut and California have both established energy savings targets for utility energy efficiency programs (Connecticut by law and California by regulation).

  • Vermont has specific savings goals in the performance contract with the nonprofit organization that runs statewide programs under a contract with the Public Service Board.

  • Pennsylvania's new Advanced Energy Portfolio Standard includes end-use efficiency among other clean energy resources.

  • Colorado's largest utility has energy savings goals as part of a settlement agreement approved by the Public Service Commission.

    Illinois and New Jersey are planning to implement EERS programs soon. The report also documents EERS-like programs that work well in the United Kingdom and the Flemish region of Belgium. In addition, Italy has recently started a program, and another is about to start in France. The report profiles each of these efforts and results to date.

    "Based on states and countries that have been implementing EERS policies for several years, it is clear that large, cost-effective savings are being realized," stated Nadel. "States and countries are finding that these efficiency savings cost several times less than generating the same amount of power and many of the early adopters are increasing their savings goals."

    ACEEE recommends that both states and the federal government enact EERS policies covering both electric and gas utilities. At the state level, an EERS can generally be established by a state legislature or by its utility commission. At the federal level, an act of Congress will be required. The ACEEE report identifies many of the issues that policymakers interested in an EERS need to address, including which utilities to include and exclude, setting appropriate savings targets, and the relationship between EERS and other energy policies.

    The ACEEE report concludes with an analysis of the energy and economic savings that could result from a national or state EERS. Assuming savings targets start at modest levels (e.g., savings of 0.25 percent of sales annually) and ramp-up over several years to 0.75 percent additional savings each year (a level many current programs are achieving), by 2020 annual electricity and natural gas use in the covered region would be reduced by nearly 10 percent compared to a reference-case forecast. At the national level, EERS savings would amount to about one-quarter of the currently projected growth in electric sales over the 2007-2020 period and about one-half of projected growth in natural gas sales over this same period. A national EERS at this level would reduce forecasted U.S. energy use in 2020 by about 5.6 quadrillion Btu (quads), which represents about 4.6 percent of total projected U.S. energy use for that year (i.e., also including energy use that would not be affected by an EERS). Overall, ACEEE finds that such an EERS implemented over the 2007-2020 period would provide net benefits to consumers and businesses of about $170 billion (i.e., discounted benefits minus discounted costs).

    "Energy Efficiency Resource Standards: Experience and Recommendations" is available for free download at http://aceee.org/pubs/e063.htm.

    Publication date: 03/27/2006

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