Tuesday, May 3, 2011

The Art of Possible

We (the United States) could upgrade our infrastructure such that we consume 90% less energy, without costing our economy one extra dime. How? We could implement an “Efficiency Portfolio Standard,” or “EPS.” I’ll later get into the weeds with respect to how an EPS works but first, I’d like to explore its impact:

1. Some people would pay extra, in the form of a “surcharge” and some people would earn extra. The net cost/benefit between them would be zero.

2. Nearly everyone would use less energy. Yes, our power plants would sell less, but they would also consume less imported fossil fuel. This would save them some. Yes, on net, consumers would gain much and power plants would lose some, but the big losers here are those we import fossil fuel from. The net cost benefit here to the United States economy would be substantially positive.

The cost of each energy unit might go up or it might go down. The surcharge would of course, tend to add to the cost of each energy unit but that’s figured in above, in Number One. Number Three has the opposite effect:

3. Because an EPS will mean we use less total energy for each unit of economic output, demand for fossil fuel will go down so those who sell it will have to compete more aggressively with one another. This will create downward pressure on the price. This is a net positive, since any price reduction would benefit our consumers and the reduced prices would be borne by not only our domestic producers, but also by those we import from.

That’s it: Number One is neutral, Number Two is positive and Number Three is positive. One, Two, Three, it’s a no-brainer to implement an Efficiency Portfolio Standard, no matter how deep an efficiency requirement the EPS delineates.

Why not then, go deep and do it quickly?

The only reason to stage an EPS over time and to limit its depth in its early stages, is to soften the blow to those who lose and to give a bit of time to those who will gain. We’ll want to re-train people, we’ll want to give businesses notice so they can build profitable technologies, and we’ll want to give financial institutions some time to reach out to the poor with contracts that will finance energy efficiency upgrades. We may even want to dedicate some dollars to temporarily subsidize some industries that are strategically essential, yet remain energy-intense. The one thing we will not want to do is wait to get a plan in place.

How does an EPS work? Generally an electricity EPS is mandated by a state or a nation and it is implemented by a government agency in tandem with private operators of the electric power grid.

The government sets a requirement for energy efficiency achieved by a date certain. The law generally defines who will be responsible for covering the cost of energy efficiency achieved. The marketplace then incorporates these definitions into its rules. For example, with all its flaws (The Connecticut EPS does have serious flaws!), Connecticut has an EPS. Anyone who sells electricity to consumers, has to buy electricity from power plants in order to serve the consumers they sell to. In addition to the electricity they buy, they have also to buy “energy efficiency certificates.”

So, Connecticut requires that if someone (energy marketer) sells one hundred units of electricity, (s)he also has to buy four energy efficiency certificates, each of which represent an upgrade to a facility that saves one unit of energy each year. A 90% efficiency portfolio standard would require the energy marketer to buy 90 certificates for each unit of electricity (s)he markets (yes math majors, that doesn’t reduce consumption by 90%; we know that!).

Anyone who installs an upgrade that achieves energy efficiency can register that upgrade with a Connecticut government agency, which then determines that the project was done and approves an engineer’s estimate of how much savings that project will generate.

Electricity marketers factor the cost of the energy efficiency certificates into their cost to the consumer, thus creating the “surcharge” described above. The person who upgrades his/her facility not only saves money from the reduced consumption, (s)he gets to sell the registered energy efficiency certificates to any of the companies that market electricity in Connecticut, thus creating the “earnings” described above.

The engineer who certifies the project gets work that is financed out of the dollars earned by the person who gets the efficiency certificate. Jobs. If an electricity marketer fails to find energy efficiency certificates, the grid operator buys the certificates for him/her, and since all marketers post credit assurance, the grid operator can bill the marketer for the cost of those certificates.

One, Two, Three: an Efficiency Portfolio Standard, no matter how aggressive it is, doesn’t cost the United States’ economy or the United States’ taxpayer a dime.

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