How the EPA’s Carbon Dioxide Regulations Could Be a Big Opportunity for Efficiency

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How the EPA’s Carbon Dioxide Regulations Could Be a Big Opportunity for Efficiency

 Allison Donnelly for Zondits, July 18, 2014

It’s been more than a month since the EPA released its greenhouse gas regulations for power plants, and much has already been said about it. One part of the proposed rule that isn’t being picked up by the likes of CNN and Fox News is its potential impact on the efficiency industry. The short version is this: The rule allows energy efficiency to count towards states’ emissions limits if they choose, and that means good business for efficiency. In case you don’t have time to read through the 645-page rule to understand more about the regulation and how efficiency fits within it, we’ve summarized the key points here.

How the Rule Works

First, some background on the rule itself. The EPA can’t set a simple percentage reduction in emissions due to the legal constraints of the Clean Air Act, so it must instead determine what level of emissions reduction is achievable and most cost-effective using a combination of technologies and practices available. This method is termed the Best System of Emission Reduction (BSER). End-use energy efficiency was one of the practices that the EPA determined would lead to an achievable level of reductions. Next, the agency set individual carbon intensities or rates (pounds of carbon dioxide produced per MWh generated, averaged across all electric generating units) for each state based on what the agency modeled was possible for each state. Nationally, this averages out to a 30% reduction in emissions by 2030. States can then employ a wide slate of measures to meet those targets, and each state will submit its own plan to the EPA stating how it will meet the standard. This is where energy efficiency comes in.

Energy Efficiency as a Regulatory Resource

EPA administrator Gina McCarthy has held up energy efficiency as the cheapest method to reduce emissions. “The biggest bang for the buck is efficiency,” she said during June’s Energy Efficiency Forum, which was co-organized by the U.S. Energy Association and Johnson Controls. “It’s getting the waste out of the system from the power plant to the plugs.”

To translate that into the standard, the EPA proposed to allow states to use a “portfolio approach” to reducing emissions that includes renewable energy and/or energy efficiency in order to reduce the need for fossil-generated electricity. States that currently have a renewable energy and/or energy efficiency standard will be able to use those goals to demonstrate compliance with the CO2 rules, and other states may choose to implement them, as long as the standards are enforceable.

Given efficiency’s low cost compared to building new generation and benefits to multiple groups, it is probable that many states, even those currently without energy efficiency targets, will put programs in place in order to take some of the burden of compliance off power plants. This means a major opportunity for traditional efficiency measures, as well as a chance for less well-developed technologies and activities to demonstrate that they can lead to measureable decreases in energy use.

Looking Forward

The EPA is currently in the midst of a 120-day comment period (ending on October 16, 2014) on its proposed rule. One of the things commenters may focus on is how to include efficiency. The agency will take the comments into account while revising the rule, the final draft of which will come out in mid-2015. States will have until June 30, 2016 (with a possible one-year extension) to submit their implementation plans to the EPA. Interim rules – which will function as a ramp-up to the final target – will be in place from 2020 to 2029, with the final standards taking effect in 2030.

There is work to be done in the meantime, though. Groups and individuals can submit comments to the EPA. Even before the proposal was finalized, six major companies – Ingersoll Rand, Johnson Controls, Honeywell, Schneider Electric, Siemens, and United Technologies – submitted a paper to the EPA suggesting how efficiency could be credited in the standard. Other groups, including the Environmental Defense Fund, have likewise developed frameworks that states can use to include efficiency in implementation plans, or asked for guidance on what can be included. (For example, technologies like demand response or smart grids aren’t mentioned but may be included under the broad umbrella of “demand-side efficiency.”) There is also a need to develop rigorous methods for measuring and verifying savings (especially from less-developed technologies) and continue to promote efficiency to utilities and end users.

Energy efficiency may be a major opportunity for utilities to reduce carbon cost-effectively to meet the standards – and in turn, these carbon standards may be a major opportunity for energy efficiency.