Efficiency’s Role in Carbon Cap-and-Trade

By Elisa Wood

August 28, 2008

We hear a lot about how efficiency will play an increasingly important role as the United States undertakes efforts to reduce carbon dioxide emissions. But how does that play out in a practical sense under cap-and-trade programs?

The Offset Quality Initiative provides insight in a new white paper on greenhouse gas offsets: http://www.pewclimate.org/docUploads/OQI-Ensuring-Offset-Quality-white-paper.pdf

A cap-and-trade program, like the Regional Greenhouse Gas Initiative (RGGI), caps emissions at a certain level in a geographic location, and then lets players use various trading mechanisms to operate within the cap. See Lisa Cohn’s blog in August 21 issue of Energy Efficiency Markets: http://energyefficiencymarkets.wordpress.com/2008/08/21/eastern-states-ready-for-big-ee-boost/

One of those mechanisms is an offset, which acts as a counterbalance to reduce overall greenhouse gases. More specifically, an offset represents emissions reduced at one site to make up for emissions produced elsewhere.

Offsets can be bought and sold in the form of credits. A commercial building owner might install efficiency improvements that reduce the amount of carbon dioxide the building produces. The owner then translates the emissions reductions into offsets under standards set by the cap-and-trade program. A power plant might buy the offsets to ‘reduce’ its emissions. The plant does not actually cut back on what it emits, but instead piggybacks on the building’s reductions. Overall emissions fall, so the cap-and-trade program achieves its goal.

RGGI, the nation’s first cap-and-trade program set to take effect next year in ten states, allows certain efficiency measures to qualify as offsets.

The program accepts offsets from efficiency measures that reduce or avoid carbon dioxide emissions created by natural gas, oil or propane in commercial or residential buildings. The building owner might improve equipment and systems for heat and hot water, install energy management systems, improve the building envelope or engage in certain other activities. (See RGGI’s model rule, page 132-145, http://www.rggi.org/modelrule.htm.)

Of course, offsets are just one way efficiency markets benefit from today’s focus on reducing carbon dioxide emissions. Even where no cap-and-trade programs exist, policymakers see energy efficiency as a key way to address climate change. The fewer electrons we use, the less power plants run; the less they run, the lower our emissions are. Thus, many cities and states are increasingly focused on larger policies and incentives that encourage businesses and homeowners to undertake efficiency measures.

Programs like RGGI help spur such thinking. Expect growing talk nationally about energy efficiency and its importance in the coming weeks as RGGI makes the news with its first market auction September 25.

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

Eastern States Ready for Big EE Boost

By Lisa Cohn

August 21, 2008

Several eastern states will see a large injection of cash for energy efficiency after the nation’s first mandatory auction of carbon dioxide allowances September 25.

The auction marks the United States entry into the world of capping and trading carbon dioxide emissions. Ten states are participating in the program, known as the Regional Greenhouse Gas Initiative (RGGI), or more commonly called “Reggie.”

To comply with RGGI, power generators must purchase carbon allowances, or permits. The September auction marks the first open sale of the allowances.

Why is this good for energy efficiency? Because the states will earn significant revenue from the sale of allowances, and many plan to put the money into efficiency programs.

By some estimates the first auction could earn the states as much as $63 million. That is with only six states participating: Connecticut, Maine, Maryland, Massachusetts, Rhode Island and Vermont. The other four states, Delaware, New Hampshire, New Jersey and New York did not have time to finalize their auction rules. However, those states have an opportunity to participate in a second auction in December.

How does it all work? Together, the states must cap carbon dioxide emissions at 188 million tons/year from 2009 to 2014. The cap drops by 2.5% for each of the next four years.

Power plants must secure one allowance for each ton of carbon dioxide they emit. The September 25 auction will offer 12,565,387 allowances.

State policymakers spent a lot of time hashing over RGGI details, and they came up with a program that makes a lot of sense. By spending auction revenue on efficiency, the states reduce power use, which further cuts back on carbon dioxide emissions.

A good source for more information on RGGI and state policy is Environment Northeast http://www.env-ne.org/. Auction details are available at http://www.rggi.org/

Visit energy writer Lisa Cohn at www.realenergywriters.com and subscribe to her free EE Markets newsletter and podcast.

Why it is so Hard – and so Important – To Increase Distributed Resources

By Lisa Cohn

August 14, 2008

If distributed resources are such a good idea, why don’t we build more of them?

A report released this week by Tufts University sheds some light on the answer. Despite all of the talk about the efficiency they bring to the grid, resources like solar energy and combined heat and power still face significant regulatory and monetary hurdles.

Consider the following findings from “Distributed Energy: The Way Forward” produced by Tufts’ Center for International Environment and Resource Policy.

* A company that develops on-site power pays 200 – 300 more basis points in debt service than a utility competitor. This is because private developers, unlike utilities, do not enjoy guaranteed equity returns, which are highly valued by lenders.

* Parent companies of manufacturers often erect insurmountable financial hurdles to installation of combined heat & power. Firms like US Steel, BP and DuPont characterize them as non-core investments, only allowed if they can achieve a one-year payback.

* Developers often face hostile utility policy, characterized by high exit fees and standby power charges, as well as ineffective net metering.

“These various tariff barriers and fees are often so high that they discourage any alternative to the status quo,” the report says. “For example, Boston University was offered a large grant and a 10-MW fuel cell system at well below the market rate plus installation assistance from the Massachusetts Technology Collaborative. However, when confronted with potentially high standby rates and other potential impediments by the utility, the university decided not to go forward with the project.”

Distributed energy is particularly important because it offers promise of driving down energy costs, which have been hitting record highs. High energy prices are bad news for a lot of reasons, but a big one is the link between energy costs and economic growth. The only long-term predictor of GDP growth is falling energy costs, says the report, quoting Bob Ayres, director of the Centre for the Management of Environmental and Social Responsibility.

The answer? Nothing quick and easy, but a unified push by industry representatives will help. Too often industry groups act without coordination, says the report.

Details about the study are available at http://fletcher.tufts.edu/ierp/projects.shtml.

Visit energy writer Lisa Cohn at www.realenergywriters.com and subscribe to her free EE Markets newsletter and podcast.

Reducing Hospital Costs through Efficiency

By Elisa Wood

August 7, 2008

The energy and healthcare industries share a mutual woe. Both are experiencing meteoric price increases.

The Alliance to Save Energy projects a household’s energy costs will be about $6,300 this year, representing about 13% of median pre-tax earnings. Meanwhile, the National Coalition on Health Care reports that medical costs rose 6.9%— two times the rate of inflation last year with total spending of $2.3 trillion or $7,600 per person. http://www.nchc.org/facts/cost.shtml

Fortunately, the U.S. Department of Energy has launched a program that brings energy efficiency to hospitals to drive down energy costs and reduce some of the financial pressure on the healthcare industry. http://www1.eere.energy.gov/buildings/energysmarthospitals/

The program is important because hospitals are significant energy consumers. A hospital’s energy intensity is 2.5 times that of a commercial building. U.S. hospitals spend more than $5 billion annually on energy, which is 1-3% of their budgets and equivalent to at least 15% of profits.

The program’s goal is to improve efficiency 20% in existing buildings and 30% in new construction. Cost savings are expected to be large — every $1 a non-profit hospital saves on energy is equivalent to generating $20 in new revenue, according to the DOE.

Hospitals are particularly good candidates for combined heat & power, which is 70-95% more efficient than conventional power production. CHP, as it is known, achieves this efficiency because it uses the heat produced in the generation process, rather than wasting it, as large grid-connected power plants do. Thus, it is able to use less fuel to electrify, heat and cool a building. http://files.harc.edu/Sites/GulfCoastCHP/Presentations/CHPForHospitals.pdf

CHP also offers hospitals back-up power if the electric grid goes down. During Hurricane Katrina, when almost everything was out of service, the 642-bed Baptist Medical Center in Jackson, Mississippi continued to care for patients without disruption because of its 3.2 MW CHP plant.

The DOE offers a free screening for hospitals so that they can see if they are good candidates for CHP http://www.bchp.org/prof-assessment.html#form

Pairing energy efficiency with other societal needs, such as bringing down healthcare costs, makes for good public policy. It offers the proverbial killing of two birds with one stone, or in this case with one coin reducing a double-burden on the average American’s pocketbook.

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