Deal or No Deal? Pros and Cons of Trading Under an Energy Efficiency Resource Standard Joe Loper, Jeff Harris, Lowell Ungar, Steve Capanna, Selin Devranoglu For ACEEE Summer Study August 2008

Overview Advocacy of national EERS – Trading proposed Trading benefit -- reduced compliance cost Trading challenges Could reduce stringency of EERS Requires more sophisticated tracking system Could give perverse policy incentives to states Non-utility role could intensify advantages and disadvantages

Advocacy of national EERS – Trading proposed

Trading benefit -- reduced compliance cost

Trading challenges

Could reduce stringency of EERS

Requires more sophisticated tracking system

Could give perverse policy incentives to states

Non-utility role could intensify advantages and disadvantages

EERS in Brief EERS and system benefit charges analogous to cap and tax Schumer (D-NY) proposal most prominent Require retail electricity distributors to achieve cumulative end-use energy efficiency improvements 10% of 2019 electricity sales in 2020 5% of 2019 natural gas sales in 2020 5 countries w/ EERS 4 allow trading Only Italy actually trading 17 states have or developing EERS 5 states allow trading No state actually trading

EERS and system benefit charges analogous to cap and tax

Schumer (D-NY) proposal most prominent

Require retail electricity distributors to achieve cumulative end-use energy efficiency improvements

10% of 2019 electricity sales in 2020

5% of 2019 natural gas sales in 2020

5 countries w/ EERS

4 allow trading

Only Italy actually trading

17 states have or developing EERS

5 states allow trading

No state actually trading

Existing EERS and Trading 5 countries w/ EERS 4 allow trading Only Italy actually trading 17 states have or developing EERS 5 states allow trading No state actually trading Why trading so limited Low EERS requirements Complexity of measuring and tracking energy efficiency savings Perhaps the newness of the policies

5 countries w/ EERS

4 allow trading

Only Italy actually trading

17 states have or developing EERS

5 states allow trading

No state actually trading

Why trading so limited

Low EERS requirements

Complexity of measuring and tracking energy efficiency savings

Perhaps the newness of the policies

Trading makes a weak EERS weaker Effective EERS stringency is reduced -- If EERS is below BAU efficiency gains of utilities with highest savings

Effective EERS stringency is reduced -- If EERS is below BAU efficiency gains of utilities with highest savings

BAU savings varies widely

Trading probably won’t increase EM&V rigor EM&V will need to be rigorous and consistent across jurisdictions with or without trading Trading would require rigorous tracking mechanisms Regional generation attribute tracking systems would need to be harmonized EM&V and Tracking

Trading probably won’t increase EM&V rigor

EM&V will need to be rigorous and consistent across jurisdictions with or without trading

Trading would require rigorous tracking mechanisms

Regional generation attribute tracking systems would need to be harmonized

Trading can make EERS more relevant EERS is blunt policy instrument No recognition of different types of generation No recognition of GT or D capacity constraints But what choice do we have? Trading could direct financial resources to “problem” areas But competition between states might limit such transactions

EERS is blunt policy instrument

No recognition of different types of generation

No recognition of GT or D capacity constraints

But what choice do we have?

Trading could direct financial resources to “problem” areas

But competition between states might limit such transactions

Race to the bottom? States may drop policies under a national EERS If non-utility policies (e.g., codes and standards) make EERS harder to meet Trading could exacerbate Since money would flow from in-state ratepayers to pay for other states’ EE improvements National EERS needs to adjust baselines to avoid penalizing aggressive policy action With or without trading

States may drop policies under a national EERS

If non-utility policies (e.g., codes and standards) make EERS harder to meet

Trading could exacerbate

Since money would flow from in-state ratepayers to pay for other states’ EE improvements

National EERS needs to adjust baselines to avoid penalizing aggressive policy action

With or without trading

Third party participation More entities to monitor Who bears risk of non-performance? More credit being given for BAU savings NAESCO member revenues $4 billion last year Could mean reduced EERS stringency Or higher costs to ratepayers

More entities to monitor

Who bears risk of non-performance?

More credit being given for BAU savings

NAESCO member revenues $4 billion last year

Could mean reduced EERS stringency

Or higher costs to ratepayers

In sum Trading has potential value Can lower overall cost of EERS compliance Can direct resources where most needed But trading creates challenges too Can reduce effective target Could exacerbate race to the bottom Requires tracking mechanisms

Trading has potential value

Can lower overall cost of EERS compliance

Can direct resources where most needed

But trading creates challenges too

Can reduce effective target

Could exacerbate race to the bottom

Requires tracking mechanisms

Thanks Joe Loper Alliance to Save Energy 202-530-2223 [email_address]

Thanks

Joe Loper

Alliance to Save Energy

202-530-2223

[email_address]