The Importance of a National Energy Efficiency Resource Standard in Progressive Infrastructure

A construction worker assembles steel framing over the foundation of a new, energy-efficient home in Studio City, California, March 2013.

Any comprehensive federal infrastructure package should include energy efficiency policies and investments to reduce the greenhouse gas emissions of both the power sector and building stock. Sixty-six percent of electricity generated by the U.S. power system is wasted before it reaches end users. Among end users, the building sector is the largest energy consumer in the United States, and 35 percent of the generated energy it receives ultimately escapes as waste. Despite these enormous losses, the power sector has failed to implement fully the available efficiency technologies that exist for every level of the energy system. Experts have long considered energy efficiency “the least-cost energy resource option that provides the best value” and lauded its potential to displace traditional sources of energy generation. Federal policy should take advantage of this opportunity to significantly reduce national energy demand by spurring innovative implementation of cost-effective efficiency measures.

In pursuit of the biggest returns, efficiency investments at the federal level should include an energy efficiency resource standard (EERS)—a national energy consumption reduction target levied on sales of both electricity and natural gas. While this program has already been adopted by more than half of U.S. states, a federal-level EERS would more ambitiously displace generation from polluting sources of energy, create jobs, and help Americans save on their energy bills, all while making deep carbon emissions cuts on a global scale. In short, an EERS should be included in any progressive federal infrastructure package in order to ensure that the government is stretching the impact of federal dollars when targeting national carbon emissions.

Definition and history

An energy efficiency resource standard (EERS) is a prescribed energy savings goal to be met in a specified time frame with efficiency measures. Energy savings are typically quantified as an annual percent reduction in energy retail sales or a multiyear goal; for example, the most ambitious state EERS in the country calls for a 2.7 percent reduction in electricity sales and a 1.25 percent reduction in natural gas sales from 2019 to 2021. Once the target is set, the obligated entity—typically, an electricity or gas provider or a state energy program administrator—approaches compliance by creating plans, programs, incentives, or a combination thereof to ensure that a specified and often incrementally increasing portion of retail demand is derived from energy efficiency.

An EERS is by nature a flexible policy avenue that allows rate-setters to determine the best course of action to meet reduction targets for energy sales. By setting a savings goal, rather than a numerical investment mandate or specific efficiency measures, an EERS encourages utilities and program administrators to be cost-effective and innovative when considering long-term strategic planning.

Program administrators have a variety of options to help meet their energy reduction goals, including waste heat recapture at power plants; more efficient transmission and distribution technologies; incentives for adopting more efficient end-user widgets such as appliances and lighting; and behavior-based programs that aim to change energy consumer culture. Obligated entities can choose to finance these programs in a variety of ways. Because utility customers see a reduction in their energy use, the cost of efficiency investments is often countered by Americans’ energy bill savings.

State practices and examples

Following Texas’ adoption of the first U.S. EERS in 1999, many states have designed and implemented their own standards. As of January 2017, 26 states had a stand-alone EERS in place—two of which allowed the program to contribute to their existing renewable portfolio standard. The U.S. Energy Information Administration and the American Council for an Energy-Efficient Economy (ACEEE) found that in 2016, 45 percent of all electricity sales in the United States were under a state EERS program. Previous national EERS proposals were projected to cover 86 percent of all electricity and 94 percent of natural gas sales in the United States.

In the nearly two decades of operational energy efficiency resource standards, almost all participating states have achieved full- or near-target completion, and there have been virtually no penalties enacted for undercompliance or noncompliance. The level of compliance by energy providers across the country, coupled with the achievements of a diverse set of states with incrementally increasing savings goals, is a testament to the standards’ popularity among stakeholders and the effectiveness of EERS policies in achieving their ultimate goals. These state-level successes provide a launch pad for smooth implementation of national standards to reduce energy consumption.

Although there is still sprawling, untapped energy efficiency potential in the United States, efficiency programs have long been popular and effective at the state level. As stated above, more than two dozen U.S. states have set binding energy efficiency goals, which have demonstrated clear economic and environmental benefits while also meeting cost-effectiveness requirements.

The benefits of a federal EERS

State-level EERS successes have all but proven that a federal-level standard would achieve significant benefits for the United States, both by setting a greater savings target over state cumulative goals and by spurring a higher rate of efficiency realization at the program administration level. A national EERS can set clear, singular targets that readily translate into quantifiable savings in carbon emissions, air pollution, and energy bills, thereby making it a more effective means for long-term, high-level carbon reduction planning than the current patchwork of state energy efficiency renewable standards. In addition, a national EERS holds the potential for job creation, as it would expand the market for energy efficiency goods and services. An expansion of EERS programs across the country would crystallize a long-term market view of energy efficiency, spurring the next generation of technological investment and innovation while driving down implementation costs for both fledgling programs and states that have been at the forefront of EERS pursuits.

In 2009, a national EERS proposal introduced to Congress called for 15 percent electricity savings and 10 percent natural gas savings by 2020. According to an analysis by the ACEEE, this proposal would have reduced peak energy demand by approximately 117,000 megawatts, displacing the equivalent of around 390 power plants. Furthermore, in the final year of compliance, it would have reduced carbon dioxide emissions by approximately 262 million metric tons—the equivalent of taking 48 million automobiles off the road that year. The ACEEE analysis also estimated a net benefit of $1,280 per household on energy bills and a net gain of 222,100 jobs from investing in these savings targets. In 2015, a more ambitious EERS proposal called for reduction targets of 20 percent in electricity use and 12 percent in natural gas use by 2030; the ACEEE estimated that these targets would result in more than 100 quads of energy and $100 billion in net savings. A similarly ambitious national energy efficiency goal implemented today could take advantage of the country’s remaining, untapped energy efficiency potential.

Conclusion

A national EERS could realistically activate a massive reservoir of potential that individual states simply cannot address. For example, it could make deep carbon emissions cuts, improve the long-term job and market outlook for energy efficiency, and provide a cost-effective way of dealing with the load growth demanded by an increasing population and economic development.

When looking to update infrastructure, Congress must make the wasteful energy consumption of U.S. building stock a priority. Energy loss from generation to end use is not only a waste of a valuable resource but also a large financial burden on the many Americans who have to pay for this inefficiency to power their homes and places of work. A federal EERS with state-specific targets would come with a variety of benefits for the United States and further entrench energy efficiency as a major domestic energy source. Energy efficiency, often termed the “low-hanging fruit” of carbon emissions reduction, is ripe for the picking. Congress must only roll up its sleeves to create an ambitious federal framework aimed at harvesting this potential.

Bianca Majumder is a research associate for Energy and Environment Policy at the Center for American Progress.

The author would like to thank Kristina Costa, Alison Cassady, Meghan K. Miller, and Steve Bonitatibus for their contributions to this column.