Thank you for the opportunity to testify here today in support of these three critical pieces of energy-related legislation: Senate Bills 205, 209, and 268.
My name is Bracken Hendricks, and I am a Senior Fellow at the Center for American Progress, where I work on climate change and energy independence, environmental protection, infrastructure investment, and economic policy. Most recently, my work has focused on state and municipal strategies for combating climate change and reinvigorating economies through energy efficiency, renewable energy, and green economic development.
These bills will work together to increase energy efficiency and provide low-cost, reliable, clean energy for all Marylanders. Additionally, I want to stress that deploying efficient and renewable energy means investment; it means job creation; and it means attracting dynamic new industries to locate in the state. Indeed, the transformation of our antiquated energy infrastructure around the platforms of efficiency and reduced carbon emissions represents perhaps the great potential engine for American innovation, productivity growth, and job creation of the coming decades.
Passage of this suite of legislation will position Maryland as a leader in state energy and climate policy. Yet Maryland is not pursuing anything unattainable or outside the mainstream of where our nation is headed in the transition to clean energy. Today, 36 states have completed or have in progress comprehensive climate action plans; over half of all states and the District of Columbia require that utilities generate specified amounts of electricity from renewable sources; and 17 states have greenhouse gas emissions reduction targets. Moreover, the ramped-up and accelerated Renewable Portfolio Standard—while positioning Maryland for leadership in this growing field—is well within the range of what other leading states have already proven can work. States as diverse as California, Oregon, Colorado, Nevada, New Mexico, and Illinois all have an RPS of at least 20 percent by 2020, and some of these states recently raised their targets after making enormous progress toward their initial goals.
I’d like to briefly highlight key attributes of the critical bills that are presented for your consideration today. First, this legislative package will, if properly implemented, save money for consumers through reduced electricity demand and diversified energy supply. It will also boost the Maryland economy by building dynamic new markets; leveraging capital investments in local renewable energy projects, creating demand for skilled workers, and situating the state at the forefront of the forthcoming nationwide clean energy transformation in a way that fosters broad and equitable economic development.
The electricity demand reductions embodied in Senate Bill 205, the “EmPOWER Maryland Energy Efficiency Act of 2008,” are an excellent starting point. Energy efficiency represents the “low-hanging fruit” of any energy policy. It is by far the “cheapest” form of “new” energy—less expensive and cleaner than bringing new generation online. And, contrary to popular myth, energy efficiency does not require drastic lifestyle shifts. The definition of energy efficiency means doing the same amount of work, or even more, and enjoying the same level of comfort, but by using less energy. Unlike energy conservation, which is rooted in changing behavior, energy efficiency is technology-based. It is often termed a “demand side resource” and is far cheaper than bringing any source of new generating capacity online. There are substantial opportunities to increase the efficiency of existing electricity use at a cost of about $0.02 to $0.04 per kilowatt/hour (kWh), with the electricity saved then available to meet new demand growth.
California provides an excellent example of what is possible with efficiency. Following the oil shocks in the 1970s, California implemented an aggressive building code, Title 24, encouraging the use of insulation and better lighting, a provision that the California Energy Commission estimates is now saving Californians $5 billion in energy costs every year. Moreover, while per-capita electricity consumption in the rest of the United States has grown by over 50 percent in the last 20 years, in California it has remained flat, despite the growing number of personal appliances, electronics, and other energy-using devices. The average American used 12,350 kw/hours of electricity per capita in 2005, while the average Californian used only 7,000 kw/hours per capita that year. It is true that Californians pay higher costs per kilowatt of energy, but since they use drastically less energy per capita than the rest of the country, the average California energy bill is comparable to the nationwide average. The importance of focusing on the final costs to consumers rather than on the per unit cost of electricity cannot be overstated.
The two main efficiency provisions in Senate Bill 205—a 15 percent reduction in per-capita electricity consumption and a 15 percent reduction in peak demand (from 2007 levels) by 2015—will save consumers money on energy bills through overall demand management and by reducing demand during peak load, when prices are highest. Achieving these targets will be facilitated by the Public Service Commission’s expanded ability to require electric companies to implement rate decoupling and demand response programs.
Senate Bill 209, entitled “Renewable Portfolio Standard Percentage Requirements—Acceleration,” ramps up the RPS from 9.5 percent to 20 percent in 2022 (including at least 2 percent derived from solar energy), and also sets targets for the intermediate years. This bill will create booming new markets for renewable energy production in Maryland and establish the secure policy environment sought by renewable energy companies looking for investment opportunities. Moreover, energy supply diversification through increased renewable energy generation increases Maryland’s energy security reducing the vulnerability of the grid and the likelihood of future supply disruptions, and it shields ratepayers from price spikes due to rising fossil fuel costs.
The expanded RPS is also an excellent job-creator. Renewable energy production creates, on average, 100 percent more jobs per unit of energy or per dollar invested than traditional fossil fuel energy production, and benefits both rural (i.e. wind and biomass) and urban (i.e. rooftop solar) areas alike. The Union of Concerned Scientists estimates that a nationwide 20 percent RPS would create nearly 1,000 new jobs in Maryland; leverage $485 million in new capital investment; bring $437 million in new income to farmers and rural land owners who produce biomass energy or lease their land to wind projects; generate $8 million in new tax revenue for communities; and save consumers $60 million in electricity and natural gas bills by 2020. Recent Maryland state-specific studies by the respected Alliance for an Energy Efficient Economy indicate even greater returns are possible.
Maryland has only just barely begun to scratch the surface of its renewable energy potential. The state currently derives 96 percent of its energy from fossil fuels and nuclear power, leaving ample room for deployment of renewable energy resources. Moreover, Maryland can be reassured of the feasibility of its RPS by the successes of other states, such as Minnesota, Texas, California, and Colorado, which have all made excellent progress toward their own ambitious RPS targets.
Lastly, its important to note that as the U.S. Congress seriously considers federal legislation mandating a nationwide 15 percent RPS by 2020, it is in Maryland’s best interest to get a head start both on renewable generation and in attracting the industries that will be required to serve this exploding market. This bill aligns Maryland’s economy well with future trends in U.S. energy markets, as well as building a more resilient, diverse, and reliable foundation of energy resources for the state in years to come.
The last piece of legislation, Senate Bill 268, establishes the Maryland Strategic Energy Investment Program and the Maryland Strategic Energy Investment Fund within the Maryland Energy Administration. It guarantees that all proceeds from the Regional Greenhouse Gas Initiative allowance auction are dedicated to supporting renewable energy and energy efficiency. This is a smart policy that will protect ratepayers.
On the surface it may be enticing to dedicate RGGI auction revenue toward consumer rebates, yet this is not the highest and best use of this key resource, for a variety of reasons. First, a recent University of Maryland study found that participation in RGGI will have essentially no impact on the price of electricity paid by Maryland consumers. Moreover, it concluded that energy efficiency investments (funded by allowance auction revenues) can reduce demand in Maryland between 1.5 percent in 2010 and 3 percent in 2025, decreasing electricity bills statewide by approximately $100 million and $200 million accordingly. Residential electricity consumers will actually experience a modest reduction in their electricity bills, with about $22 in annual savings by 2010. Dedicated investments in energy efficiency and renewable energy are vital to achieving the demand reductions embodied in EmPOWER Maryland, and also necessary to keep consumer rates low, and the return to ratepayers is both greater and more lasting by using these resources to invest in a more efficient and diverse low-carbon energy mix.
Second, rebates are a short-term fix for a larger problem: high bills resulting from inefficient energy usage. Targeted programs to reduce consumption through efficiency will have a more lasting economic impact on ratepayers’ budgets then a simple rebate check that does nothing to reduce long-term energy costs. Further by stabilizing demand, these investments will help reduce costs even for those consumers who do not benefit from use of efficiency and renewables incentive programs.
Third, efficiency programs like home weatherization are excellent job creation mechanisms. Leveraging RGGI allowance auction revenues toward programs like these would not only reduce consumer energy costs, but also create good paying-jobs in one of the hardest-hit economic sectors, by creating incentives for substantial new investments in housing and the construction trades. Altogether, Maryland will enjoy a greater net social benefit from employing auction revenues to reduce demand and diversify electricity supply by bringing renewable sources online, than by simply cutting rebate checks that may have the unintended effect of prolonging wasteful energy consumption practices, while offering small and limited relief to consumers. Revenue from RGGI allowances are a key resource that can yield a long term benefit for Maryland ratepayers if invested wisely, with a smart financing mechanism, as envisioned in this bill.
All around the country, cutting edge entrepreneurs, community activists, and forward-thinking elected officials are pursuing the promise of green economic growth to create good jobs and expanded opportunity for those who need them most, while reducing global warming emissions and investing in local people and places. Most importantly, these stakeholders are motivated by more than altruism: they see enormous growth potential in the new green economy. With this legislation, Maryland can establish itself as a leader on clean, renewable, and efficient energy and forward-looking solutions to global warming, and ensure that the state is primed to benefit from the nationwide green economic transformation that is already underway.
Thank you once again for the opportunity to testify today, and I urge you to strongly support this important energy package.