Examining the Energy Policy Modernization Act of 2015

By:Ken Stier

A key energy bill with decent prospects of becoming law has at its core energy efficiency—one of the few areas of energy policy that is not so controversial as to preclude compromise in these highly partisan times.

The most comprehensive congressional update of the energy sector in nearly a decade, the Energy Policy Modernization Act of 2015 (EPMA; S.2012)—which has a rough companion already passed by the House—updates myriad efforts by the federal government, led by the DOE, to advance the slow but mostly steady progress the country has made improving efficiency in commercial and residential buildings, which consume 72% of the country’s electricity demand and 42% of total energy. The Senate version—sponsored by Senator Lisa Murkowski, R-Alaska, and Senator Maria Cantwell, D-Wash.—was forged through multiple hearings held over a year’s time and focused on key aspects of the wide-ranging bill (including energy supply, infrastructure, cybersecurity, and innovation) at which some 114 energy related bills were considered; controversial provisions were gradually removed to get something passable. The bill reported out of the Senate’s Committee on Energy and Natural Resources last July and has been on the floor this year, but is now subject to senatorial “holds.”

A core principle of the bill is that energy efficiency is a critical least-cost resource that deserves more support. The reasons are clear. Energy efficiency is the low-hanging fruit in the system. Energy efficiency costs $.045/kWh, while new generation is almost three times more expensive (about $.12/kWh, according to an estimate by the Lawrence Berkeley National Laboratory).

That makes energy efficiency “a resource [that] is larger, cheaper, and a better job creator and carries lower environmental impacts than other alternatives,” argued Cantwell. “It not only saves consumers money, but also strengthens the economy, adds flexibility to our grid, and reduces carbon pollution.”

Nationally, energy use was trimmed by 2.4% between 2007 and 2014 when the GDP grew by 8%; that’s an energy productivity increase of 11% (which translates to 11% more economic output for every electron consumed). The current energy bill sustains this momentum, although compromises to get this far will restrain the impact to an approximate .5% gain in efficiency in 2030, according to analysis by the American Council for an Energy-Efficiency Economy (ACEEE), an organization founded in 1980 that promotes energy-efficiency policies and technologies—and a reliable source for such calculations.

On a cumulative basis up to 2040, the bill should provide consumer savings of $60 billion by slashing energy use (an amount equivalent to Michigan’s energy usage over 10 years) and reducing carbon dioxide by 1.5 billion metric tons—the total emissions from all cars, trucks, and trains in the United States over a year, according to the study by the ACEEE.

“But,” according to ACEEE Executive Director Steven Nadel, ”the savings could be three times larger if two key provisions were included, one related to federally guaranteed residential mortgages (requiring underwriters to consider energy savings) and another setting energy targets for utilities, similar to those adopted by about half the states.”

The former measure might still be partially adopted, but the latter, establishing a federal “Energy Efficiency Resource Standard,” was already shot down, even though it would have by far the largest impact on energy savings.

Most of the savings come from a series of standard-setting programs aimed at driving improvements in buildings’ energy codes (and to a lesser extent appliance and equipment performance). The codes come under the umbrella of the DOE’s Building Energy Code Program (BECP), which got underway in 1991 and offers continually upgraded model energy codes, accelerated adoption by states and localities, and improved code compliance through training and technical support.

Over the first 20 years of the program, the DOE calculates that its BECP has yielded energy savings worth $44 billion. At a cost of $110 million, that seems a stunning ROI, according to a 2014 study by the Pacific Northwest National Laboratory.

But these are very rough estimates based on adoption and compliance that no one has a particularly good handle on, concede officials from the American Society of Heating, Refrigerating, and Air-Conditioning Engineers, which, together with the International Code Council, develops these codes that are later vetted and endorsed by the DOE. Indeed, only six states have adopted the most current version of the commercial energy codes, which are updated every three years (see here: energycodes.gov/adoption/states). The standards are voluntary and there are no teeth to standards endorsed by the DOE.

With those caveats, the BECP is expected to put more than $7.4 billion per year back in consumers’ pockets by 2020. As better energy savings measures are incorporated into the building sector around the country, savings swell to $230 billion through 2040.

Indeed, noted Tony Crasi, representing the National Association of Home Builders, new buildings have now become so efficient that “any significant reduction in overall energy use can only be achieved by addressing the existing building stock and occupant behavior.” That’s critical because more than 95 million existing rental and owner-occupied homes were built before 1991, and about 80% will still be in use in 2050.

Tax credits, which can stimulate expensive retrofits, are too often allowed to expire, and even if retroactively renewed, the yo-yo impact is undermining the usefulness of these incentives, especially in the past five years, Crasi explained to Congress last year.

Another problem, he pointed out, is that the DOE typically analyzes energy cost-effectiveness over a 30-year period, while average home ownership is far shorter. It will take an average family more than 13 years to break even on some new codes. More reasonable is a seven-year payback, while budgetconscious first-time home buyers need a five-year payback, found an NAHB market report, What Home Buyers Really Want. Additionally, for every $1,000 increase in the price of a home, 246,000 households will be priced out of mortgage eligibility for a 30-year, fixed-rate mortgage with a 5% interest rate, the study found.

The pending energy bill directs the DOE to design two rebate programs to promote adoption of more efficient electrical motors and higher-efficiency transformers. Only the electric motor directive, citing a funding target of $5 million, suggests the scale contemplated. Actual funding requires a separate appropriations bill. That funding target struck most sources as distinctly modest, if not truly token, but Schoening Strategies, a Washington, D.C.- based consultant working for NAED, suggested that the industry could lobby for more funding when the DOE designs the rebate program if the EPMA actually becomes law—later this year, possibly.

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