Tax reform & federal energy policy: incentives to promote energy efficiency. U.S. Senate hearing.

[ By far the best strategy to cope with energy decline is to prepare by making homes, businesses, appliances, vehicles, and so on more energy efficient.  If it turns out that renewable energy has too low an EROI to sustain civilization as we know it, or unable to keep the electric grid up because energy storage never becomes commercial, or the instability is too great to cope with at some level of penetration, or so many fossil fuel (mainly natural gas) plants are still required because of the inability to rely on intermittent wind and solar and its seasonality, then energy efficiency is the MAIN “solution” to the coming energy crisis.

Alice Friedemann  author of “When Trucks Stop Running: Energy and the Future of Transportation”, 2015, Springer]

Senate 112-814. December 12, 2012. Tax reform & federal energy policy: incentives to promote energy efficiency. U.S. Senate hearing, 211 pages.

Excerpts follow:

JEFF BINGAMAN, NEW MEXICO, CHAIRMAN.   The tax code has long served as a way to promote energy policy goals. For most of this time, the code only offered incentives for the production of energy, first from mineral resources and then from oil and gas. Recent years have brought important incentives for renewable energy resources, though unfortunately many of those still remain temporary and uncertain. Even more recently, Congress has decided to reintroduce certain tax incentives that promote the efficient use of energy, recognizing the value in preserving our domestic resources by developing technologies that use less energy to accomplish the same task. However, with the possibility of comprehensive tax reform in the next Congress, and within the context of a contentious debate on how to close the Federal deficit, we need to assess the existing policies to determine if their goals are worth the cost to the taxpayer, and, if they are —and I believe that energy efficiency is a worthy policy goal—then we need to examine the best, least-cost ways of achieving that goal.

Dan Arvizu, Director of the National Renewable Laboratory.  Research into new, more efficient ways to construct, modernize, and operate our homes and commercial buildings and businesses is an important part of our mission.  The megawatts that are not used are just as important as the megawatts that are.

Three years ago, McKinsey produced a landmark analysis that showed that, by 2020, the U.S. could reduce non-transport energy consumption by a quarter. That would cost $520 billion but would pay back $1.2 trillion in energy cost savings. In 2010, the National Academy of Engineering and Science’s report also found that the Nation could save money by cutting energy consumption by 30 percent and produce the same amount of goods and services.

One project we participated in with Target stores in Colorado cut energy consumption by 35 percent, and they are now busy replicating that enterprise- wide.

Private residences, which comprise a little more than half of the energy used by buildings in the U.S., provide equally large opportunities for savings. The DOE’s Building America program has demonstrated that homes can have a 40% energy reduction at no additional cost in almost every U.S. climate zone. A Habitat for Humanity home built under this program likewise proved that ambitious energy efficiency targets and goals can be accomplished with very tight cost constraints.

Simulation tools like DOE’s Energy Plus package and the building optimization program are continually being refined so that businesses, consumers, utilities, government agencies, and policymakers have the most accurate energy insights and can make the best efficiency decisions possible.

Industrial energy efficiency is one area where our new technology can dramatically improve performance. An example is the fast- growing data center industry. Set to open next year, NREL’s new peta-scale high-performance computing system is the leading edge, both in computing and also in energy efficiency. A comparable existing standard data center today would be 13 times more energy- consuming than the NREL system.


STEVE NADEL, Executive Director, American ?Council for an Energy-efficient Economy.   In our research we have found that the tax incentives that were enacted in the 1980s were not very effective in spurring substantial energy savings, as these credits promoted tried-and-true energy efficiency measures that many consumers and businesses were installing on their own. Most of the participants were what we call ‘‘free riders.’’ They took the money but would have taken the same actions even without the incentives. Furthermore, the amount of the tax credit in the 1980s was too small to spur many additional investments. On the other hand, tax incentives enacted in 2005 were more targeted. They emphasized advanced technologies and paid higher incentives. Our review of the experience with these has found that the tax incentives for new homes and appliances, in particular, were very effective in growing the market for qualifying homes and appliances and that the incentives for residential heating and cooling equipment, were also very successful in encouraging development of new products and purchases of the most efficient products.

Based on these experiences—I am turning now to your second question—we concluded that the most useful tax incentives target long-term structural changes in the market using temporary Federal assistance to build the market for energy-efficient products so the tax incentives can be phased out. At this point, the market can continue to grow, supported by other energy efficiency programs and policies such as EnergyStar, utility energy efficiency programs, building codes, and equipment efficiency standards.

Advanced products and services should be specified in terms of performance, leaving it to manufacturers and service providers to decide which technologies to use to reach the specified performance levels. By focusing on products with efficiency levels that currently have a very small market share, we can keep costs down and minimize the number of free riders.

A Federal role is particularly useful in the early stages of market development, because the Federal Government can provide a national market with uniform qualifying criteria and incentives, making it more likely that manufacturers and contractors will make the investments to develop market- qualifying energy-saving technologies and service. It is much harder to transform markets without Federal involvement.

We found that the most cost-effective options include tax incentives for commercial buildings, energy-efficient new homes, heating and cooling equipment and appliances, and combined heat and power systems. We also found that whole-house energy-saving retrofits and replacing old chillers were also very cost-effective.

The average cost to the Treasury for all of these credits was only 28 cents per million Btu saved. This is less than a tenth of what the average energy cost is.

Combined heat and power (CHP) systems are poised to make substantial strides, as utilities and their customers look to replace old, dirty power plants that are now being retired. A tax incentive will spur more combined heat and power systems during this critical period. The provision in the bill modestly expands an existing CHP incentive now on the books to address some issues with the previous incentive that will help make it more workable. We found this to be one of the most cost-effective provisions we examined. I also wanted to briefly note that the chiller provision in S. 3352 is also very timely. It will provide a credit to encourage replacing old, inefficient chillers that contain CFC refrigerants. CFCs, as you probably all know, harm the ozone layer and have not been permitted in new chillers for many years. However, some of the old chillers remain, leaking CFCs and using excessive amounts of energy.


MATT GOLDEN, Principal,, & Policy Chair, Efficiency First, San Francisco, CA.   Energy efficiency is unique in that it creates its own cash flow. Simply put: it pays for itself. However, there are significant market barriers that prevent this vital resource from being harvested more effectively. One of the key steps towards a solution is to begin to account for energy savings as a resource. Reducing demand on the grid through energy efficiency is akin to building power plants, only cheaper, 100% domestic, and completely clean.  Power plants supply predictable amounts of energy into established markets, and utilities can easily raise capital to make these investments in energy supply. However, we lack the same capital sources and markets for energy efficiency, even though it is widely understood to be the most cost-effective resource for meeting our energy needs. In fact, the energy we have saved through energy efficiency efforts in the last 40 years equates to a resource that is greater than any other single energy source in the country: greater than nuclear, natural gas, or coal.

Grocery stores comprise another key category. Because of the need for both large refrigeration systems and oftentimes commercial-scale bakeries and kitchens, the grocery segment has some of the highest per-square-foot energy costs of any retail business. Grocery represents 2% of the nation’s commercial floor space, but consumes 5% of total commercial building energy consumption. The slim margins of a modern-day grocery chain-about 2% on average on one hand demand that energy improvements be cost- efficient. On the other hand, the substantial energy needs of these stores means big opportunities for savings, and equally large returns on investment. One assessment showed that $1,000 saved in utility bills can have the same bottom-line impact as $50,000 in new grocery sales.

In August of this year, my research institution, NREL, took the next step by assessing the impact that some 400 laboratory-tested and peer-reviewed energy efficiency measures could have if deployed in the United States [“A Tool to Prioritize Energy Efficiency Investments”; Philip Farese, et al; NREL TP-6A20-54799].

This work showed there are multiple pathways for the nation to reduce energy use in buildings by one-half by 2030. And if we do so, the energy cost savings would equal twice the dollar amount invested.

A leading example of R&D success is the Commercial Building Partnership (CBP), a publicprivate, cost-shared program. Sponsored by DOE, it partners building owners and operators, National Laboratories like NREL, and technical experts from the private sector. The CBP has examined scores of different energy efficiency measures spanning a full range of building components-from more efficient sales floor lighting to use of reflective roof coatings. The partnership has included some of the biggest names in the retail business, including WalMart, Target, Best Buy, JCPenny, Home Depot, and Kohl’s. And by virtue of these players alone, the program can have impact: Total floor space operated by these retailers is 1.7 billion square feet.

Energy efficiency begins with how the building wings are oriented toward the sun, and also determined the 60-foot width of each wing, an interior breadth that enables thorough day-lighting and natural ventilation for all occupants. Windows are optimally sized, placed, and shaded to maximize daylight while minimizing unwanted heat losses and excessive gains. A below-building labyrinth of massive concrete structures stores thermal energy. Precast concrete insulated panels provide significant thermal mass to moderate the building’s internal temperature.

Although energy improvements in new homes are critical, more than 70% of the U.S. housing stock was built before 1990, before the most energy- efficient building codes were put in place.

Industry represents 31 percent of U.S. energy consumption, and there exists huge potential for energy savings in the U.S. industrial and manufacturing sector.

The average American family spends over $1,800 per year on energy, which equates to over $200 billion. This represents 22% of all US energy consumption, 35% more energy than is used for passenger cars and trucks combined.

A regrettable but profoundly important lesson for contractors and program champions in the US relates to what happened in the failed Australian program in 2009-2010 under a stimulus-driven energy efficiency home retrofit program. In summary the program was halted prematurely in large part due to the fact that there was little to no risk management practices applied to the work being done – which resulted in deaths of workers and claims of widespread fraud in the program. After the program was halted, the insulation industry had to be bailed out by the government as it had ramped up to meet the expected long-term demand for energy efficiency home improvements. The negative implications impacted the entire manufacturing and supply chain, not to mention insulation contractors large and small. As a result of a lack of focus on contractor qualifications and a minimum standard of care for the work done, and the unchecked rush to create “stimulus” jobs, the energy efficiency home retrofit industry in Australia may be set back a generation. Congress needs to bake into any performance based tax credit, credible contractor qualifications – to protect consumers, workers, contractors, and tax payers.

Generally, in the program in Australia, a minimum standard of care, built on a foundation of quality, was not prevalent and consistent at all levels. Our industry cannot afford to have a program go bad and set us back. As such, Efficiency First is supportive of programs that “do no harm” to occupants and workers and have consistency with respect to: 1. Qualified Auditors & Contractors (the right people) 2. Quality Standards & Specifications (doing the right work) 3. Qualified Software and other Tools (using the right tools), and 4. Oversight by a Credible and Robust Quality Assurance Infrastructure (verification)

Energy costs are regressive by nature, with lower income homeowners paying a substantially higher portion of their income towards energy costs. Helping these families reduce their expenses puts money directly into needed services and into local economies. Americans should never be put into a situation of having to decide to pay their utility bill going to the doctor and paying for their critically needed medication. By improving the energy efficiency in homes, Americans are then free to spend those savings on other critical needs. According to the National Association for State Community Services Programs (NASCSP) Over 51,000 New Mexican households fall below 50% of the poverty level, paying around 52% of their annual income towards their energy bills alone. Another 70,000 New Mexican households fall between 50-100% of the poverty line, paying on average 18% of their annual income towards their energy bills. By comparison, the average middle-income family pays 3% of their annual income towards their energy bills.

Since 2009, New Mexico has weatherized over 3,700 homes with Recovery Act funds alone, enabling these families to save between $250 to $400 annually on the energy bills depending on the type of dwelling and fuel.

Due to the inability of many lower income homeowners to maintain equipment such as HVAC and water heaters there is a resulting increase in dangerous indoor air quality issues that can lead to asthma and allergies. Simply stabilizing the temperature in a home or building may help reduce incidents of mold and reduce dust mites, which are both major triggers of respiratory health problems. Both home performance and weatherization apply building science principles that treat the house as a system, it is common to see significant improvements not just in energy, but also in air quality and comfort.

British Thermal Unit (BTU) is the standard unit of energy measurement in the United States. A 100 W light bulb burning for 2900 hours consumes about a million Btu’s.

Energy, water and pumps.  Pumps account for 10% of global electricity demand. With the latest available technology, we can cut this figure in half, assuming universal adoption of high-efficiency pump systems. Upgrading pumps and pump systems in domestic and commercial buildings, industrial applications, and municipal water and wastewater systems can yield significant energy savings.

Many of the pumps currently used in buildings were designed more than 50 years ago. These pumps are often highly inefficient, running continuously at top speed regardless of actual performance demand.

Another example of energy-saving technology is demand-driven distribution of water in municipal water systems. The existing water infrastructure is outdated in many parts of the United States, leading to leaking pipes and significant water loss.

A recent survey by the Chicago-based Center for Neighborhood Technology of 55 water utilities in the Great Lakes region showed annual leaks totaling 66.5 billion gallons of water. This number is equivalent to the annual water consumption of more than 500,000 households. Intelligent pump systems can reduce these kinds of leakages by up to 50%. Electricity consumption in the distribution system can also be reduced by up to 50%. The problems with outdated water infrastructure and high levels of water loss illustrate the importance of looking at water efficiency as an integral part of policies to promote energy efficiency.

Efficiency standards and tax incentives.  A major challenge in the adoption of intelligent pump technology is lack of commonly accepted efficiency standards and lack of awareness among users. While energy efficient light bulbs, windows and many other appliances are highly visible, pumps tend to be hidden in mechanical rooms. In this sense, pumps are among the last unexplored frontiers of energy efficiency. Greater awareness about the energy efficiency of pumps and pump systems should be a part of any comprehensive strategy to boost energy efficiency in the US. In Europe, the pump industry developed a voluntary measuring and labeling system for energy efficiency in 2005. In 2009, this action was followed by official EU minimum standards for energy efficiency in pumps. These standards are expected to save the equivalent of the residential electricity consumption of 14 million people in the EU.

There are currently no energy efficiency standards for pumps in the US,

We must look at the over 95 million rental and owner-occupied homes that were built before modern energy codes in 1991. Without effective tax incentives, those homes will continue to waste energy and cost the consumer money.

The U.S. Department of Energy (DOE) reports that housing built after 2000 used 14% less energy per square foot than the housing built in the 1980’s and 40% less than housing built before 1950.  As such, there is considerable room for improvement in energy performance even among well designed, constructed and maintained properties. According to the American Housing Survey (2009) almost 81% of the Nation’s stock of apartment properties (with 5 or more units) was constructed prior to 1990, which marks the decade in which the first building energy codes were implemented. This older stock of housing, which is an important source of affordable housing, represents a significant opportunity for achieving energy savings while at the same time adding to the available spending capacity of individuals who live in these apartment homes. This is a significant consideration since in 2010, approximately 70 percent of renter households had incomes below the national median and more than 40 percent had incomes in the bottom quartile. Furthermore, “energy costs as a share of gross rents rose from 10.8 percent to 15.0 percent between 2001 and 2009.

A particular challenge for apartment properties comes in the fact that 80% of apartment residents pay their own utilities so any financial savings due to lowered utility consumption is largely unavailable to the property owner to offset the cost of investment in more efficient systems.”


National Propane Gas Association (APGA).  The National Propane Gas Association (NPGA) is the national voice for the odorized propane gas industry.  Propane’s most well-known use in 42 million American backyard grills, nearly 10 million U.S. households rely on propane for space heating, cooking, hot water and many other needs. These households are predominantly non-urban and off the natural gas main, and they depend on propane gas as a clean-burning, efficient, low-cost and reliable alternative to fuel oil and/or electricity.

Because propane is derived from natural gas liquids, the boom in American natural gas production has brought with it a boom in propane gas. In fact, 5 years ago propane was considered as a net import, with half of the supply produced from oil refining and the remainder from natural gas. Today, propane gas has grown to he considered a net export.

Nearly 100% of propane is produced domestically with over 70% coming from natural gas sources. In 2011, the U.S. exported 12.7% of the total U.S. propane supply, and for 2012 that number is expected to be higher. These are supplies that could, and should, be used here at home.

NPGA believes that any lax incentives for appliance or equipment efficiency contemplated by Congress should require the use of a Full Fuel Cycle analysis as part of the energy efficiency equation. A Full Fuel Cycle (FFC) analysis is the most accurate way to calculate energy use as “ell as environmental emissions. FFC accounts for: Energy consumed in the extraction, processing and transport of primary fuels; Energy losses in electric power-generation or gas processing plants; Energy losses associated with transmission and distribution of fuel to the end user; Greenhouse gas (GHG) emissions associated with each step within this process.

An FFC analysis differs from a site energy, or point of use, analysis because efficiency measurements based on site, or point of use, do not account for the efficiency of all the upstream energy use and emissions associated with delivering the fuel to its point of use. Therefore, it fails to provide a complete energy efficiency, energy consumption and greenhouse gas profile.

The U.S. Department of Energy (DOE) announced on August 18,2011 that it would adopt the recommendations of a study performed by the National Academy of Sciences, which concluded:

“DOE should consider moving over time to use a full-fuel cycle measure of energy consumption for assessment of national and environmental impacts, especially levels of greenhouse gas emissions, and to providing more comprehensive information to the public through labels and other means such as an enhanced website”.

NPGA supports the idea that FFC measurement enables a more comprehensive analysis of the total energy use and environmental impacts and should be included in any energy efficiency rating, building energy consumption, energy use, and energy savings test. It can be applied to everything from appliances to motor vehicles to small or large buildings.

By lowering its building energy costs, the U.S. can be a much more effective global competitor.



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