97027: Energy Efficiency: Key to Sustainable Energy Use

Fred Sissine

Science, Technology, and Medicine Division

November 27, 1998

CONTENTS

SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Energy Efficiency Concept
History
DOE Management

Mission and Strategic Plan
FY1999 Performance Goals and Measures
Evaluating Energy Efficiency Program Impacts

FY1999 DOE Budget Request: Key Changes
FY1999 EPA Budget Request: Key Changes
Climate Change
Oil Import Dependence
TEA21 Authorization
Electric Industry Restructuring
LEGISLATION
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
FOR ADDITIONAL READING

SUMMARY

Debate in the 105th Congress over the funding and direction of energy efficiency programs involves the FY1999 spending request, the Administration's Climate Change Technology Initiative (CCTI), and proposals for restructuring the electricity industry.

The Administration places priority on energy efficiency as the flagship of the nation's effort to establish a sustainable energy economy. It cites continuing oil import vulnerability and environmental problems of air and water pollution and climate change as a rationale for increased energy efficiency spending in FY1999.

The FY1999 request for the Department of Energy (DOE's) Energy Efficiency Program sought $808.5 million (including $35 million in oil overcharge funding), a $196.8 million, or 32% increase. It sought to increase R&D by $160.8 million, or 35%, and grants by $36 million, or 23%. In contrast, the Omnibus Appropriations bill (P.L. 105-277) sets funding at $692.3 million, which is $116.2 million less than the request, but it is also $80 million, or 13% more than the FY1998 level. This includes $69.8 million, or 15%, more for R&D; and $11 million, or 7%, more for the grant programs. (See Table 2 at the end of this brief.)

Also, for CCTI-related energy efficiency activities, the FY1999 Environmental Protection Agency (EPA) request sought $205 million, while the Omnibus Appropriations bill (P.L. 105-277) approved $109 million. (See Table 1).

In early November 1998, at the Fourth Conference of Parties (COP-4) in Buenos Aires, the Administration signed the Kyoto Protocol. It calls upon the United States to cut greenhouse gas (GHG) emissions to 7% below the 1990 level during the period from 2008 to 2012. In response, the Administration has proposed the CCTI, which sought $6.3 billion over 5 years in R&D and tax incentives for energy efficiency and "clean" energy sources. DOE and EPA FY1999 requests include programs that would catalyze or otherwise encourage developing nations to curb GHG emissions. Congressional concerns focused on the size of the FY1999 requested increases, whether the CCTI was an attempt to avoid congressional approval of the Kyoto Protocol, and whether developing nations would join in curbing emissions.

Oil imports account for 50% of national oil use, which amounts to $60 billion, or 36%, of the trade deficit. There is some concern that rising demand in developing countries combined with high oil dependence in the transportation sector keeps the nation's economy vulnerable to an energy price shock.

Many states and electric utility companies created demand-side management (DSM) programs primarily to promote energy efficiency as an alternative to powerplant construction. Falling DSM funding under state restructuring has prompted concern that a federal restructuring could cause DSM to decline further.

The Transportation Equity Act for the 21^st Century (TEA21, P.L. 105-178), the reauthorization of the Intermodal Surface Transportation Efficiency Act (ISTEA), includes some provisions that help reduce energy demand or otherwise conserve energy and prevent pollution.

MOST RECENT DEVELOPMENTS

On November 12, at the COP-4 meeting in Buenos Aires, the United States became the 60^th nation to sign the Kyoto Protocol. The Administration's CCTI strategy for meeting the U.S. goals under the Protocol emphasize increased funding for energy efficiency programs at DOE and EPA. On October 21, the President signed the Omnibus Appropriations bill for FY1999 (P.L. 105-277), which includes the Interior and Related Agencies Appropriations bill. For DOE Energy Efficiency Programs, it appropriates $691.7 million, a $80 million, or 13%, increase over the FY1998 level (including inflation). The FY1999 mark includes $526 million for R&D, a $69 million increase; and $166 million for grant programs, an $11 million increase. Further, the mark for R&D includes $202 million for Transportation, a $9 million increase; $96 million for Buildings, a $17 million increase; $24 million for the Federal Energy Management Program (FEMP), a $4 million increase; and $166 million for Industry, a $30 million increase. Further, the Omnibus bill added about $9.5 million to the $99 million approved in conference (P.L. 105-276) for CCTI-related energy efficiency programs at EPA. Also, the bill includes language that would bar DOE from using funds solely to support objectives of the Kyoto Protocol, but allows use of funds for programs that are justified independently of the Protocol.

BACKGROUND AND ANALYSIS

Energy Efficiency Concept

Energy is conserved when technical means are employed to improve efficiency or to reduce energy waste. Energy efficiency is increased when an energy conversion device, such as a household appliance, automobile engine, or steam turbine, undergoes a technical change that enables it to provide the same service (lighting, heating, motor drive) while using less energy. The energy efficiency of buildings can be improved through the use of certain materials such as attic insulation, components such as insulated windows, and design aspects such as solar orientation and shade tree landscaping. Further, the energy efficiency of communities and cities can be improved through architectural design, transportation system design, and land use planning. Thus, on one hand, energy efficiency is an engineering and design aspect of energy production and distribution equipment. On the other hand, it is also a design and planning feature of transportation systems and living spaces.

These ideas of "efficiency" and "conservation" contrast with energy curtailment, which involves a decrease in output (e.g., turning down the thermostat) or services (e.g., driving less) to curb energy use. That is, energy curtailment occurs when saving energy causes a reduction in services or sacrifice of comfort. Curtailment is often employed as an emergency measure.

In one regard, energy efficiency can be thought of as a resource option like coal, oil or natural gas. Energy efficiency technologies can be ranked by cost and formed into a "supply curve" of options. The selection of options is driven by a prevailing price level: those below the cutoff price are cost-effective and those above it are not. The range of cost-effective options changes with price. Further, technological innovation can change options' costs and add new options to the supply curve.

In contrast to supply options, however, energy efficiency puts a downward pressure on energy prices by curbing demand instead of increasing supply. This means that energy efficiency provides additional economic value by preserving the resource base and reducing pollution. This quality defines energy efficiency as a pollution prevention technique and as a key resource for sustainable development on a local, national, and global basis.

History

From 1974 through 1992, Congress established several complementary programs, primarily at the Department of Energy (DOE), to implement energy saving measures in virtually every sector of societal activity. DOE organizes its programs by sector, including Transportation, Buildings, and Industry programs. These energy efficiency and energy conservation programs were created originally in response to national oil import security and economic stability concerns. In the early 1980s, states and utilities took an active role in promoting energy efficiency as a cost-saving "demand-side management" tool for avoiding expensive powerplant construction. Since 1988, national interest in energy efficiency has focused increasingly on energy efficiency as a pollution prevention tool for mitigating environmental problems such as air pollution and global climate change. This aspect spawned new programs at DOE and at several other agencies including the Environmental Protection Agency (EPA), the Agency for International Development (AID), and the World Bank's Global Environment Facility (GEF). Energy efficiency is increasingly viewed as a critical element of sustainable development and economic growth.

The DOE energy efficiency program includes R&D funding, grants to state and local governments, and a regulatory framework of appliance efficiency standards and voluntary guidelines for energy-efficient design in buildings. In addition, there is a regulatory program that allows independent cogenerators to sell electricity to utilities. (A detailed description of DOE programs appears in DOE's FY1999 Congressional Budget Request, DOE/CR-0050, v. 4, February 1998.)

From FY1973 through FY1997, DOE spent about $7.4 billion in 1998 constant dollars for energy efficiency R&D, which amounts to about 6% of the total federal spending for energy supply R&D. In 1998 constant dollars, energy efficiency R&D funding declined from $732 million in FY1979 to $209 million in FY1988 and then climbed to $512 million in FY1994. For FY1998, $457 million was appropriated, which is $55 million, or 11%, below the FY1994 mark. Also, since FY1973, DOE has spent about $7.2 billion on grants for state and local conservation programs.

This spending history can be viewed within the context of DOE spending for the three major energy supply R&D programs: nuclear, fossil, and renewable energy R&D. From FY1948 through FY1972, the federal government spent about $22 billion for nuclear (fission and fusion) energy R&D and about $5 billion for fossil energy R&D. From FY1973 through FY1996, the federal government has spent $42 billion for nuclear, $20 billion for fossil, $11 billion for renewables, and $7 billion for energy efficiency. Total energy R&D spending from FY1948-FY1997 reached $108 billion, including $66 billion, or 61%, for nuclear, $26 billion, or 24%, for fossil, $11 billion, or 10%, for renewables, and $7 billion, or 7%, for energy efficiency.

Since 1985, national energy use has climbed about 16 Q (quads -- quadrillion Btus, British thermal units), reaching a record high of 93 Q in 1996. DOE's 1995 report Energy Conservation Trends finds that energy efficiency and conservation activities from 1973 through 1991 curbed the pre-1973 growth trend in primary energy use by about 31 Q, a 27% reduction. In 1992, this was saving the economy about $283 billion annually, which is equal to about half of the nation's $538 billion annual energy spending. Of the 31 Q in savings, 56% comes from industry, 21% from residential buildings, 5% from commercial buildings, and 18% from transportation.

DOE Management

On April 8, DOE Secretary Peña released the Comprehensive National Energy Strategy, which calls for increasing near-term deployment of environmentally friendly technologies -- such as energy efficiency equipment -- and calls for accelerated development and market adoption of environmentally friendly technologies worldwide.

Mission and Strategic Plan

The FY1998 DOE request states that the mission of the Office of Energy Efficiency and Renewable Energy (EERE) is to "work with our customers to lead the nation to a stronger economy, a cleaner environment, and a more secure future by developing and deploying sustainable energy technologies that meet the needs of the public and marketplace." EERE contends that it has developed a peer-reviewed "quality metrics" system that allows DOE to set concrete goals and to measure program progress, impact, and success. DOE claims that this system exceeds the requirements of the Government Performance and Results Act (GPRA, P.L. 103-62) of 1994.

To fulfill its mission, EERE pursues energy efficiency programs in transportation, industry, utility, and buildings sectors. It also conducts a Federal Energy Management Program (FEMP) to show public sector leadership in cutting federal energy bills. By the year 2005, according to DOE, its Energy Efficiency Programs are projected to save consumers and businesses an additional $10 billion per year, and its industry sector programs are projected to save U.S. firms an additional $3 billion annually by the year 2000.

At a July 30, 1997 hearing before the House Science Committee, DOE acknowledged that key parts of GPRA's requirements had not been fulfilled by the first draft of its Strategic Plan. DOE delivered the final Strategic Plan (dated September 30, 1997) to the Committee in early October. Objective four under "Energy Resources" is focused on energy efficiency strategies.

On January 30, 1998, DOE released its 15-page Draft Comprehensive National Energy Strategy(NES) for public comment. One page of the draft NES is dedicated to Goal I, which aims to "improve the efficiency of the energy system." This goal applies to both supply technologies, such a coal-fired electric powerplants, and to end-use systems and technologies, such as buildings, cars, and appliances. Somewhat more specific objectives and strategies address general aims for PNGV and alternative fuels by 2010, and for federal buildings by 2005. The document is available from DOE's web site.

FY1999 Performance Goals and Measures

The DOE Performance Plan for FY1999 is appended to the Budget Highlights volume of the DOE FY1999 budget request. Twelve FY1999 energy efficiency measures and performance goals appear under the energy resources goal. Also, one appears under the corporate management goal. Virtually all of the FY1999 goals and measures address demonstration projects or grant programs. Some examples are:

• Build a single cylinder proof-of-concept diesel engine that delivers up to 55% efficiency.
• Maintain an industry cost-share level of 40%, when averaged across all work with industry.
• Weatherize 78,000 households, bringing the total to 4.7 million.

There are no goals or measures specified for R&D programs.

Evaluating Energy Efficiency Program Impacts

Performance measures tend to focus on program processes and outputs. This is distinctly different from measuring actual program impacts, or outcomes, which is called for in GPRA.

Energy efficiency savings occur as the nation's stock of appliances, automobiles, industrial equipment, and buildings are either replaced by more energy-efficient stock or are otherwise modified to reduce energy waste. The resultant savings are often measured by observing differences between actual and projected energy demand levels. In contrast to energy supply facilities, where a few companies can easily meter actual energy production, energy efficiency savings are usually estimated on the basis of assumed changes in the energy use patterns of millions of consumers or "end-users." The main technique for obtaining measures of actual energy savings from programs is evaluation research, a branch of the social sciences concerned with assessing costs and impacts. Credible assessments of energy savings and energy efficiency program effectiveness require reliable baseline information on end-use energy patterns and strict application of the scientific principles of evaluation research.

EERE's effort to evaluate program outcomes has been neither comprehensive nor sufficiently regular. However, it has performed a variety of studies that may constitute a more thorough effort than that by other DOE offices. EERE has twice (1989, 1995) produced Energy Conservation Trends, a report that assesses nationwide energy efficiency savings, but without fully explaining the links between its programs and the identified trends in national energy savings. In 1995, DOE's Energy Information Administration (EIA) produced Measuring Energy Efficiency in the United States' Economy: A Beginning. This report also takes a broad look at factors influencing national energy use, but without drawing any direct links to EERE programs.

Also, EERE has conducted in-depth evaluations of weatherization and other grant programs, and it has issued "success stories" about technology development program outcomes. The success stories tend to be more difficult because techniques are not well developed for measuring the outcomes of R&D programs. As a result, evaluations of R&D tend to become less outcome-oriented and more focused on management and program development processes that are assessed by peer review mechanisms. In the FY1998 budget request, EERE is proposing outcome evaluations for several programs. However, the GPRA-required annual performance plan for 1999 does not include designs for program outcome evaluation.

FY1999 DOE Budget Request: Key Changes

On July 23, the House approved $632.3 million for DOE's FY1999 Energy Efficiency Program, excluding $43 million for a proposed transfer of the Advanced Turbines Program from the Office of Energy Research (OER). This mark includes $45 million added in a floor amendment (Regula, Fox, Skaggs), which includes $9 million more for Weatherization grants, $2 million more for State Energy grants, and $34 million that is not specified for particular programs. The $632.3 million is $176.2 million, or 22%, less than the Administration Request; and it is $45.4 million, or 7%, less than the Senate mark. On June 26, the Senate Appropriations Committee recommended $677.7 million (transfer of Advanced Turbines Program was not proposed), which is $130.8 million, or 16%, less than the Administration request.

On June 25, the House Appropriations Committee issued its recommended FY1999 funding mark for DOE's Energy Efficiency Program. The committee recommended $587.3 million (excluding Advanced Turbines), which is $221.2 million, or 27%, less than the Administration request. In addition, the mark includes a $43 million transfer of the Advanced Turbines Program from the Office of Energy Research (OER).

On February 2, 1998, the Administration issued its FY1999 budget request. It seeks $808.5 million (including $35 million in oil overcharge funding), a $196.8 million, or 32% increase. Under the request, R&D would have increased by $160.8 million, or 35%, and grants would increase by $36 million, or 23%. Also, funding increases were requested for several programs that support the Administration's Climate Change Technology Initiative (CCTI). Transportation R&D would have increased by $52.8 million, including $21.2 million more for fuel cell vehicles, $18.6 million more for heavy vehicles, and $7.4 million less for electric vehicles. Buildings R&D would have grown by $47.5 million, including $19.3 million more for building equipment and $13.3 million more for building systems. Industry R&D would have increased by $30.4 million, including $19 million for a new environmental solicitations program.

The Administration's FY1999 budget request sought major increases for energy efficiency programs at DOE (and EPA, see below). The President's Climate Change Technology Initiative (CCTI) is the main engine for the large increases that were requested. The increases, and their association with climate issues following from the Kyoto protocol, became the subject of considerable debate. The Administration described the budget initiative as part of the "first stage" of three-stage approach to climate change. This first stage consists of "immediate actions to stimulate the development and use of technologies that can minimize the cost of meeting U.S. goals in reducing greenhouse gas (GHG) emissions. The Administration has stressed that the increased spending supports other national interests in reduced air pollution, more cost-effective economy, and improved competition in global markets for energy equipment. One environmental group, the Friends of the Earth, stated that the CCTI "just won't do the job." It contends that existing subsidies to the fossil fuel industries need to be eliminated and that too much of the CCTI funding would go to the large automobile and utility industries with little effect. In contrast, some fossil energy industry representatives and the Global Climate Coalition have described the Kyoto Protocol and the CCTI initiatives as a burden on the economy that would force energy prices to rise and make U.S. industries less competitive globally.

(Details of the DOE request appear in Table 2, at the end of this brief)

FY1999 EPA Budget Request: Key Changes

The FY1999 Omnibus Appropriations Bill (P.L. 105-277) set $109 million as the mark for the President's Climate Change Technology Initiative (CCTI) programs at EPA. In contrast, following CCTI, the FY1999 EPA budget request sought $205 million for CCTI programs out of a total of $230.6 million for climate change programs at EPA. The CCTI programs are focused primarily on deployment of energy efficiency technologies. EPA conducts climate-related energy efficiency programs under the Office of Policy, Planning and Evaluation (OPPE) and under the Office of Air and Radiation (OAR) through Environmental Programs and Management (EPM) and Science and Technology (S&T). Table 1 shows the spending marks for the CCTI effort.

Table 1. EPA Funding for Climate Change Energy Efficiency Programs
($ millions current)

FY1999 request for EPM programs sought an increase of $56.2 million, or 38%. EPM programs include Green Lights, Energy Star Buildings, Energy Star Products, Climate Wise, Consumer Labeling, and others. These programs include public-private partnerships that promote energy-efficient lighting, buildings, and office equipment. Efforts also include information dissemination and other activities to overcome market barriers. The major EPM changes requested by the Administration included: $30.7 million more for voluntary partnerships with industry, $37.1 million more for transportation initiatives such as PNGV and "livable communities" efforts to curb growth in automobile travel, $39.3 million more for buildings initiatives in federal and other governmental buildings as well as for information partnerships with equipment manufacturers and building owners. Also, a $3.4 million increase is sought for carbon removal through biomass and biofuels; and a $5.4 million increase was requested to help form partnerships for "meaningful participation" from developing countries.

Similarly, the request sought nearly $36 million more for the S&T programs. S&T programs include the Agency's Clean Car program, its contribution to the PNGV project, and other activities. Not shown in the table is a $20.5 million request for the Global Change Research Program. (This Program is covered in more detail in CRS Issue Brief 89005) The major S&T changes requested include: $4.8 million more for regional scale climate impact assessments, $1.1 million more for research on ecosystem services, and $0.9 million more for research on ecosystem change and human health.

Under EPA's FY1999 Performance Plan Goal #6, Objective #2 on "Climate Change" states that, " By 2000 and beyond, U.S. greenhouse gas emissions will be reduced to levels consistent with international commitments agreed upon under the Framework Convention on Climate Change, building on initial efforts under the Climate Change Action Plan. More specific performance goals related to these programs include: (1) reduce U.S. greenhouse gas (GHG) emissions by 40 million metric tons of carbon equivalent (MtC), (2) reduce U.S. energy use by 45 billion kilowatt hours per year with energy cost savings of $3 billion per year, (3) engage 10-12 developing countries in efforts to achieve meaningful participation in GHG emissions, and (4) guide efforts to develop emissions trading, joint implementation, and the "Clean Development Mechanism."

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