Coming Climate Change Policy and the Effect on Energy Efficiency

Frank Stern, Nicole Wobus, and Jane Pater, Summit Blue Consulting, LLC

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Abstract

Mandatory federal climate change policy in the U.S. is virtually inevitable at this point. The questions remaining are how stringent will the policy be, what sectors will it cover, and when will it take place? And, in terms of energy efficiency (EE), what will be the effect on that industry? Climate change policy is likely to make EE more cost-effective, but the nature and magnitude of the impact are subject to more uncertainty. It appears likely that the coming federal legislation will take the form of a cap-and-trade program. The critical concept to realize when estimating the impact on EE is that if the EE program is reducing electricity use within a capped system, then it should not be eligible for offsets since system-wide emissions are not being reduced. With any stringent cap, emissions will be at the capped level whether or not the EE programs exist. However, while the EE programs may not be eligible for direct benefits, those who invest in EE will indirectly benefit, quite possibly significantly, due to allowance prices that are passed through in the avoided generation costs. The effect will vary regionally due to the differing makeup of the generation portfolio.