What price motivates customers to save energy?

By Elisa Wood

May 29, 2008

“Are we there yet?” We’ve heard that refrain often over the last couple of years. No, not from our kids in the backseat of the car, but from energy observers wondering exactly how much price pain the consumer will take before cutting back significantly on use.

Two reports circulating this week indicate that we have arrived – or at least we are close.

Americans drove their cars 4.3% fewer miles in March 2008 than they did a year earlier, according to the Federal Highway Administration. This is the first time since 1979 that we took to the road less in March. While a 4.3% drop may not sound like much, it amounts to 11 billion miles, and represents the largest decline since the FHWA began reporting monthly statistics in 1942. http://www.fhwa.dot.gov/pressroom/fhwa0811.htm

It appears the specter of $4/gallon keeps the key out of the ignition. AAA reports that average unleaded gasoline prices hit $3.952/gallon on May 29, up from $3.197 a year ago. Prices already have topped $4 in several states, among them California, Connecticut, District of Columbia, Hawaii, Illinois, Michigan, Rhode Island, Washington, Wisconsin and West Virginia. http://www.fuelgaugereport.com/sbsavg.asp

Meanwhile, on the electricity front, a recent study by Carnegie Mellon University researchers found that charging power generators even a modest price for carbon dioxide emissions would motivate changes in consumer behavior and power plant operations. The study comes as several states in the Mid-Atlantic and Northeast prepare for a carbon cap-and-trade program set to begin next year. Congress is eying similar national rules.

The report, published by Environmental Science & Technology, says that consumers would likely reduce consumption of electricity at a price as low as $35 per metric ton for CO2. This is lower than prices posted by Point Carbon for European trading May 28, which was €26.20 per metric ton or about $40. http://int.pointcarbon.com/Home/Market%20prices/Methodology/category745.html.

In addition, at $35 per ton for carbon, we may see changes in the way that grid operators dispatch power plants. They may start giving preference to lower emissions generators. While power prices would rise, “consumers would pay more attention to their energy consumption or switch to more energy efficient appliances,” said M. Granger Morgan, Lord Chair Professor in Engineering in the Department of Engineering and Public Policy at Carnegie Mellon. http://www.tepper.cmu.edu/news-multimedia/tepper-multimedia/tepper-stories/co2-pricing-study-reveals-consumption-efficiencies/index.aspx

No one wants to see high energy prices – the economic ramifications are enormous. But the good news is consumers appear to finally be saying “Ouch,” opening more doors for plug-in hybrids, energy efficient appliances, green construction and other energy savings approaches.

Visit energy writer Elisa Wood at www.realenergywriters.com and subscribe to her free Energy Efficiency Markets Newsletter and podcast.

Report Reveals Unusual EE Market Pattern

By Elisa Wood

“Big dogs eat first” is a phrase often used to describe energy markets. That is, expect large energy consumers – usually manufacturers — to be the first at the plate to take advantage of any economic benefits. But a recent report suggests that when it comes to energy efficiency, householders may nudge the Mastiffs out of the way.

The American Council for an Energy-Efficient Economy found that in divvying up EE investment dollars, the US home makes up a disproportionate share. Specifically, appliances and electronics made up 48% of the $178 billion spent on buildings in 2004. Yet these devices represented only 8% of the energy consumed by buildings. Meanwhile, the industrial sector received only 25% of EE investment dollars even though these businesses use up 34% of our energy.

The report “The Size of the U.S. Energy Efficiency Market: Generating a More Complete Picture,” noted that this phenomenon is curious. We agreed, and contacted the authors for their insight into the cause.

Karen Ehrhardt-Martinez, co-author with John A. “Skip” Laitner, attributed the unusual pattern to the fact that homeowners now change out their appliances and electronics more frequently. They are not necessarily looking for greater efficiency, but more likely better performance or aesthetics. She cited computers as an example. Large advancements occurred in a relatively short period of time, resulting in out-of-date equipment over the short-run that people seek to replace. New appliances and electronics also happen to be more efficient, in line with government and industry standards.

So without trying, the average person contributed significantly to EE, avoiding the need for about 40 mid-sized coal-fired power plants during the one year the report analyzed. This “invisible” nature of EE, discussed in the report, may be one of its largest benefits. Consumers can take advantage of EE with little effort on their part.

Much hoopla is made about windmills and solar panels these days. While they are clearly a valuable part of the energy supply, they have not met 75% of our new energy demand since 1970, as EE has. Given its silent clout, EE may deserve its own new energy market catch-phrase: Big dog barks quietest.

Visit energy writer Elisa Wood and pick up her free Energy Efficiency Markets newsletter and podcast at www.realenergywriters.com

Big Energy Efficiency Vote Due From Small Commission

By Reid Smith

The European Union (EU) isn’t shy about implementing aggressive energy policy. In January, for example, the EU passed a proposal for Climate Action that includes an overall binding target of 20% renewable energy by 2020, according to the European Commission.

The US, on the other hand continues to shy away from aggressive energy policy. However, one of the more influential energy votes of the year will be decided by a small council in Minnesota, the International Codes Council (ICC). The ICC will vote in September on an energy efficiency policy that could influence energy in the US over the next 20 years, according to the ICC.

What is the International Codes Council and why is it that it has such an influence over national energy use? The ICC is a membership association that develops the codes used to construct residential and commercial buildings.  Most U.S. cities, counties and states adopt codes that follow the standards developed by the ICC. For more information, see http://www.iccsafe.org/.

One non-profit, the Energy Efficiency Codes Coalition (EECC) has developed a comprehensive proposal called the “30% Solution,” which is estimated to achieve a 30% overall improvement in energy efficiency for all US homes. It mandates more aggressive standards in space heating and cooling, thermal envelope, air sealing, hot water heating and lighting. See http://ase.org/extensions/eecc/ for more information on the EECC and its proposal.

According to the National Association of Home Builders, half of the homes that the US will need in 2030 have yet to be constructed.  Homes and other buildings use 75% of US electricity and 40% of its energy, and are big emitters of greenhouse gases.  If buildings are built more efficiently today, they’ll have an important impact before 2030. By that time, world market energy consumption is expected to increase by 57% according to the US Department of Energy.

As energy costs continue to spike, energy efficiency is becoming increasingly important, especially for low-income homebuyers.  According to Global Green, a non-profit focusing on low-income homeowners, homeowners’ inability to pay utility bills is the number two reason for foreclosure of first homes.  Because it costs much more to renovate an existing structure, it is critical to build all new homes with a strict energy efficiency code.

Given the potential for the ICC to dramatically cut energy use, it’s a good idea to keep an eye on this proposal.

Visit Reid Smith and pick up his free Energy Efficiency Markets Newsletter at www.realenergywriters.com

Think Gas Prices Are High? Electricity is Next.

By Elisa Wood

Today’s interest in energy efficiency may be nothing compared to tomorrow’s, if power prices rise as much as expected.

One of the biggest price drivers, at this point, appears to be greenhouse gas restrictions, which Congress is expected to enact. It’s not clear yet exactly what the rules will be. But a federal analysis of a leading proposal shows electricity prices rising 5% to 27% by 2020 and as much as 64% by 2030. http://www.eia.doe.gov/oiaf/servicerpt/s2191/index.html

And greenhouse gas restrictions are only one factor pushing up electricity prices. Industry insiders cite additional pressure from rising fuel costs, higher component costs, and new transmission investments.

And then there is demand for power. Many of us think the US finished its electrification when the country finally connected all of rural America to the grid during the 1950s. http://www.greatachievements.org/?id=2990. But in some sense, it appears that was only the beginning of electrification. We did not anticipate the kind of second round, now occurring, as many everyday tools become electricity-driven, most notably the pen and paper’s transformation into the computer. Another major step in electrification is likely as the plug-in hybrid car becomes available to consumers in just two years. By 2030, these cars – which we fuel by plugging into a typical household electrical outlet – are expected to make up 30% of car sales, according to the Electric Power Research Institute.

Computers, plug-in cars, and other electric devices will boost our electricity needs dramatically. The US Energy Information Administration, often conservative in its forecasts, expects demand for electricity to grow 40% by 2030. To meet that need, the US must construct 250 to 500 new power plants – and power plants are not cheap. The EIA estimates the cost will be $412 billion. http://www.eei.org/industry_issues/electricity_policy/state_and_local_policies/rising_electricity_costs/causes.htm

This week the Long Island Power Authority said it plans to offer customers $924 million in efficiency products and services over the next 10 years. It is a lot of money, but cheaper, says LIPA, than building new power plants. Customers will pay about $40 per year to cover the cost. But they can recoup the charge – and more – by taking advantage of efficiency products offered through the program. A typical residential customer can recoup the money in a few months and save $90 annually on electricity costs by replacing six incandescent bulbs with compact florescent bulbs, tuning up a household air conditioner and sealing ducts, according to LIPA.

Because of such savings, hardly a week goes by now without a governor, mayor or utility in the US announcing a new efficiency goal. They are bracing for higher electricity prices and looking to energy efficiency as the only sure-fire, short-term way to ease consumer costs.

Visit energy writer Elisa Wood and subscribe to her free Energy Efficiency Markets newsletter and podcast at www.realenergywriters.com.

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The Rebound Effect: Does Energy Efficiency Actually Lead to More Energy Use?

By Elisa Wood

You’re about to buy a computer, and you see that newer models are more energy efficient than your old one. That’s great news! Now you can leave it on all night, saving the bother of powering it up in the morning. Maybe you’ll end up using a few more watts, but who’s counting?

Maybe no one – but perhaps someone should.

This phenomenon – the idea that it’s okay to use an appliance more if it is efficient – is known as the rebound effect. And it’s worrying economists and clean energy advocates.

The rebound effect can take many forms. When I shop for a new refrigerator, I may find that the newer, more efficient models are much cheaper to operate than my old unit. So I decide to buy a bigger model. Or perhaps I insulate my house and use the money saved on home heating to take a vacation. I gobble up any energy I saved – and even more – by taking a plane ride.

Critics of efficiency programs point to the rebound effect to argue that efficiency does not get the bang for the buck claimed.

But how great is the rebound effect? We asked the Alliance to Save Energy. Steve Capanna, senior research associate, directed us to a 2005 International Energy Association paper that says about 10% to 20% of the energy saved by an efficiency measure is lost due to increased consumption.

Does this mean efficiency is not worth pursuing? No, ASE points out you still have achieved an energy savings of 80% to 90%. So the glass is not half-empty, but in fact more than half full.

Still, the rebound effect cannot be ignored, particularly since energy companies increasingly convert their energy savings into carbon dioxide emissions reductions. If they do not calculate the efficiency savings accurately, carbon emissions reductions figures will be askew.

This is a serious worry, particularly since the rebound effect may be more deeply imbedded in the economy than we think. For example, Chris Goodall, author of the book, How to Live a Low Carbon Life, says that “better economy-wide energy efficiency (through, say, improvements in steel-making technologies) may encourage more rapid economic growth, which in turn raises energy use.” (http://www.carboncommentary.com/2007/11/11/51)

While critics may overstate the rebound effect, clearly the efficiency industry cannot ignore it. The US begins its first carbon emissions cap- and-trade program in 10 states next year, and a national carbon restriction program is likely to soon follow. Carbon reduction claims will undergo increasing scrutiny. Data must be highly accurate.

The credibility of the energy efficiency industry depends upon it keeping as much bounce as possible out of the rebound effect – or, at the very least, remembering to consider the effect when declaring energy savings.

Visit energy writer Elisa Wood and subscribe to her free Energy Efficiency Markets Newsletter at www.realenergywriters.com