Energy Efficiency Solutions [1 ed.] 9781617284014, 9781606925492

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Copyright © 2008. Nova Science Publishers, Incorporated. All rights reserved. Energy Efficiency Solutions, edited by Richard P. Cateland, Nova Science Publishers, Incorporated, 2008. ProQuest Ebook Central,

Copyright © 2008. Nova Science Publishers, Incorporated. All rights reserved. Energy Efficiency Solutions, edited by Richard P. Cateland, Nova Science Publishers, Incorporated, 2008. ProQuest Ebook Central,

ENERGY EFFICIENCY SOLUTIONS

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No part of this digital document may be reproduced, stored in a retrieval system or transmitted in any form or by any means. The publisher has taken reasonable care in the preparation of this digital document, but makes no expressed or implied warranty of any kind and assumes no responsibility for any errors or omissions. No liability is assumed for incidental or consequential damages in connection with or arising out of information contained herein. This digital document is sold with the clear understanding that the publisher is not engaged in rendering legal, medical or any other professional services.

Energy Efficiency Solutions, edited by Richard P. Cateland, Nova Science Publishers, Incorporated, 2008. ProQuest Ebook Central,

Copyright © 2008. Nova Science Publishers, Incorporated. All rights reserved. Energy Efficiency Solutions, edited by Richard P. Cateland, Nova Science Publishers, Incorporated, 2008. ProQuest Ebook Central,

ENERGY EFFICIENCY SOLUTIONS

RICHARD P. CATELAND

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EDITOR

Nova Science Publishers, Inc. New York

Energy Efficiency Solutions, edited by Richard P. Cateland, Nova Science Publishers, Incorporated, 2008. ProQuest Ebook Central,

Copyright © 2009 by Nova Science Publishers, Inc.

All rights reserved. No part of this book may be reproduced, stored in a retrieval system or transmitted in any form or by any means: electronic, electrostatic, magnetic, tape, mechanical photocopying, recording or otherwise without the written permission of the Publisher. For permission to use material from this book please contact us: Telephone 631-231-7269; Fax 631-231-8175 Web Site: http://www.novapublishers.com NOTICE TO THE READER The Publisher has taken reasonable care in the preparation of this book, but makes no expressed or implied warranty of any kind and assumes no responsibility for any errors or omissions. No liability is assumed for incidental or consequential damages in connection with or arising out of information contained in this book. The Publisher shall not be liable for any special, consequential, or exemplary damages resulting, in whole or in part, from the readers’ use of, or reliance upon, this material.

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Independent verification should be sought for any data, advice or recommendations contained in this book. In addition, no responsibility is assumed by the publisher for any injury and/or damage to persons or property arising from any methods, products, instructions, ideas or otherwise contained in this publication. This publication is designed to provide accurate and authoritative information with regard to the subject matter covered herein. It is sold with the clear understanding that the Publisher is not engaged in rendering legal or any other professional services. If legal or any other expert assistance is required, the services of a competent person should be sought. FROM A DECLARATION OF PARTICIPANTS JOINTLY ADOPTED BY A COMMITTEE OF THE AMERICAN BAR ASSOCIATION AND A COMMITTEE OF PUBLISHERS. LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA Available upon request.

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Energy Efficiency Solutions, edited by Richard P. Cateland, Nova Science Publishers, Incorporated, 2008. ProQuest Ebook Central,

CONTENTS Preface Chapter 1

Chapter 2

Chapter 3

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Chapter 4

Chapter 5

Chapter 6

vii Automobile and Light Truck Fuel Economy: The CAFE Standards Brent D. Yacobucci and Robert Bamberger

1

Energy Efficiency: Opportunities Exist for Federal Agencies to Better Inform Household Consumers United States Government Accountability Office

15

Energy Efficiency: Long-standing Problems with DOE’s Program for Setting Efficiency Standards Continue to Result in Forgone Energy Savings United States Government Accountability Office

71

Testimony of Jonathan Koomey, Lawrence Berkeley National Laboratory, Stanford University, before the Joint Economic Committee of the United States Congress, for a hearing on Efficiency: The Hidden Secret to Solving Our Energy Crisis, July 30, 2008

103

Testimony of Dan W. Reicher, Climate Change and Energy Initiatives, Google.org, before the Joint Economic Committee, Hearing on “Efficiency: The Hidden Secret to Solving Our Energy Crisis”, July 30, 2008

121

Opening Statement of Senator Charles E. Schumer, Joint Economic Committee Hearing: “Efficiency: The Hidden Secret to Solving Our Energy Crisis, July 30, 2008

133

Energy Efficiency Solutions, edited by Richard P. Cateland, Nova Science Publishers, Incorporated, 2008. ProQuest Ebook Central,

vi Chapter 7

Contents Testimony of Mark P. Mills, Digital Power Capital (An Affiliate of Wexford Capital LLC) Author, Forbes Energy Intelligence column, Co-author, the Bottomless Well (Basic Books, 2005), before the U.S. Congress Joint Economic Committee, Hearing on “Efficiency: The Hidden Secret to Solving Our Energy Crisis”, July 30, 2008

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Index

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PREFACE DOE has missed all 34 congressional deadlines for setting energy efficiency standards for the 20 product categories with statutory deadlines that have passed. DOE’s delays ranged from less than a year to 15 years. Rulemakings have been completed for only (1) refrigerators, refrigerator-freezers, and freezers; (2) small furnaces; and (3) clothes washers. DOE has yet to finish 17 categories of such consumer products as kitchen ranges and ovens, dishwashers, and water heaters, and such industrial equipment as distribution transformers. Lawrence Berkeley National Laboratory estimates that delays in setting standards for the four consumer product categories that consume the most energy––refrigerators and freezers, central air conditioners and heat pumps, water heaters, and clothes washers––will cost at least $28 billion in forgone energy savings by 2030. DOE’s January 2006 report to Congress attributes delays to several causes, including an overly ambitious statutory rulemaking schedule and a lengthy internal review process. In interviews, however, DOE officials could not agree on the causes of delays. GAO’s panel of widely recognized, knowledgeable stakeholders said, among other things, that the General Counsel review process was too lengthy and that DOE did not allot sufficient resources or make the standards a priority. However, GAO could not more conclusively determine the root causes of delay because DOE lacks the program management data needed to identify bottlenecks in the rulemaking process. In January 2006, DOE presented to Congress its plan to bring the standards up to date by 2011. It is unclear whether this plan will effectively clear DOE’s backlog because DOE does not have the necessary program management data to be certain the plan addresses the root causes. The plan also lacks critical elements of an effective project management plan, such as a way to ensure management accountability for meeting the deadlines. Finally, the plan calls for a sixfold increase in workload with only a small increase in resources. DOE plans to manage the workload through improved productivity.

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In: Energy Efficiency Solutions Editor: Richard P. Cateland, pp. 1-14

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Chapter 1

AUTOMOBILE AND LIGHT TRUCK FUEL ECONOMY: THE CAFE STANDARDS *

Brent D. Yacobucci and Robert Bamberger ABSTRACT

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On April 22, 2008, the National Highway Traffic Safety Administration (NHTSA) released a Notice of Proposed Rulemaking (NOPR) that would establish fuel economy standards for model year (MY) 2011 -MY20 15 passenger cars and light trucks. The rulemaking is in followup to the Energy Independence and Security Act of 2007 (EISA, P.L. 110-140), enacted in mid-December 2007, which restructured the automotive fuel economy program. It established a corporate average fuel economy (CAFE) standard of 35 miles per gallon (mpg) by MY2020 for the combined passenger automobile and light truck fleet. However, to meet the combined standard, automakers will continue the practice of calculating the CAFE of their car and light truck fleets separately. The proposed rule would establish passenger car fuel economy at 31.2 mpg in MY201 1, increasing to 35.7 mpg in MY2015. For trucks, the comparable goals for compliance are 25.0 to 28.6 mpg. Lastly, the design of the program will be “attribute” based; every model of new vehicle will have its own target, based on the vehicle’s footprint. Manufacturers’ passenger car fleets will be required to come within 92% of the overall standard for a given model year. Above that floor, manufacturers can earn credits for exceeding the standards in one vehicle class and apply credits to boost the CAFE of a different vehicle class that is short of compliance. Additionally, credits may be sold and bought among manufacturers. CAFE credits for the manufacture of flexible-fueled vehicles (FFV) were retained by EISA, but will be phased out by MY2020. Civil penalties assessed for non-compliance will be deposited to the general fund of the U.S. Treasury to support future rulemaking and to provide grants to U.S. manufacturers for research and development, and retooling in support of increasing fuel efficiency. The law also requires the development of standards for “work trucks” and commercial mediumand heavy-duty on-highway vehicles. An important development bearing on CAFE was the denial in late December 2007 of a waiver to the state of California by the Environmental Protection Agency that would *

This is an edited, excerpted and augmented edition of a Congressional Research Service publication, Report RL33413, dated May 7, 2008.

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Brent D. Yacobucci and Robert Bamberger have permitted California (and other interested states) to set vehicle greenhouse gas standards under the Clean Air Act. Reducing fuel consumption could be one of the major tools for reducing vehicle emissions. A waiver would allow these states to require more stringent fuel economy of vehicles sold in those states than required by the new standards established by EISA. Some have suggested that language in the NOPR pre-empting states from regulating tailpipe emissions would be challenged in court if included in any final rule. A November 15, 2007, decision by the U.S. Court of Appeals for the Ninth Circuit overturned a final rule issued by NHTSA for MY2008-MY201 1 light trucks. The Court ruled that NHTSA had not conducted a sufficiently rigorous analysis to measure whether the standards would have a beneficial effect in improving environmental quality through reduction of greenhouse gas emissions. The analysis accompanying the NOPR for MY201 1-MY2015 appears intended to address the deficiencies identified by the Court in the earlier rulemaking.

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MOST RECENT DEVELOPMENTS Corporate Average Fuel Economy (CAFE) standards are fleetwide fuel economy averages that motor vehicle manufacturers must meet each model year (MY). On April 22, 2008, the National Highway Traffic Safety Administration (NHTSA) released a Notice of Proposed Rulemaking (NOPR) that would establish fuel economy standards for MY201 1MY2015 passenger cars and light trucks. The rulemaking is in followup to the Energy Independence and Security Act of 2007 (EISA, P.L. 110-140), enacted in mid-December 2007, which restructured the automotive fuel economy program. It established a corporate average fuel economy (CAFE) standard of 35 miles per gallon (mpg) by MY2020 for the combined passenger automobile and light truck fleet. However, to meet the combined standard, automakers will continue the practice of calculating the CAFE of their car and light truck fleets separately. The proposed rule would establish passenger car fuel economy at 31.2 mpg in MY201 1, increasing to 35.7 mpg in MY2015. For trucks, the comparable goals for compliance are 25.0 to 28.6 mpg. Lastly, the design of the program will be “attribute” based; every model of new vehicle will have its own target, based on the vehicle’s footprint. The target fuel economy for a vehicle of a given footprint will increase over time, and will be derived from application of a mathematical function that will relate vehicle attributes to fuel efficiency levels. Manufacturers’ passenger car fleets will be required to come within 92% of the overall standard for a given model year. Above that floor, manufacturers can earn credits for exceeding the standards in one vehicle class and apply credits to boost the CAFE of a different vehicle class that is short of compliance. Additionally, credits may be sold and bought among manufacturers. CAFE credits for the manufacture of flexible-fueled vehicles (FFV) were retained by EISA, but will be phased out by MY2020. Civil penalties assessed for non-compliance will be deposited to the general fund of the U.S. Treasury to support future rulemaking and to provide grants to U.S. manufacturers for research and development, and retooling in support of increasing fuel efficiency. The law also requires the development of standards for “work trucks” and commercial medium- and heavy-duty on-highway vehicles. An important development having a bearing on CAFE was the denial in late December 2007 of a waiver to the state of California by the Environmental Protection Agency that

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Automobile and Light Truck Fuel Economy: The CAFE Standards

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would have permitted California (and other interested states) to set vehicle greenhouse gas standards under the Clean Air Act. Reducing fuel consumption could be one of the major tools for reducing vehicle emissions. A waiver would allow these states to require more stringent fuel economy of vehicles sold in those states than required by the new standards established by EISA. Some have suggested that language in the NOPR pre-empting states from regulating tailpipe emissions would be challenged in court if included in any final rule. A November 15, 2007, decision by the U.S. Court of Appeals for the Ninth Circuit overturned a final rule issued by NHTSA for MY2008-MY201 1 for light trucks. The Court ruled that NHTSA had not conducted a sufficiently rigorous analysis to measure whether the standards would have a beneficial effect in improving environmental quality through reduction of greenhouse gas emissions. The analysis accompanying the NOPR for MY201 1MY2015 appears intended to address the deficiencies identified by the Court in the earlier rulemaking. Whether, if challenged, the Court would find it sufficient, is uncertain. At this point, there would be no reason for NHTSA to resubmit its light truck rule for MY2008MY20 11.

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CURRENT CAFE STANDARDS The Arab oil embargo of 1973-1974 and the subsequent tripling in the price of crude oil brought into sharp focus the fuel inefficiency of U.S. automobiles. New car fleet fuel economy had declined from 14.8 mpg in MY1967 to 12.9 mpg in MY1974. In the search for ways to reduce dependence on imported oil, automobiles were an obvious target. The Energy Policy and Conservation Act (EPCA) established CAFE standards for passenger cars for MY1 978. The CAFE standards called for an eventual doubling in new car fleet fuel economy. EPCA also granted NHTSA the authority to establish CAFE standards for other classes of vehicles, including light-duty trucks.[1] NHTSA established fuel economy standards for light trucks, beginning in MY1979. For passenger cars, the current standard is 27.5 mpg. For light trucks, the standard was set at 22.2 mpg for MY2007. The CAFE standards to MY201 1 are summarized in table 2. As noted, on April 6, 2006, NHTSA issued additional rules to further increase light truck fuel economy through MY20 11, a rule that was remanded to NHTSA. The MY2008-MY201 1 light truck fuel economy standards shown in the table below are included for informational purposes to show the path of the interim standards that were proposed by NHTSA. Given the remanding of the rule, the standard of 22.2 mpg for light duty trucks prevails until raised by a final (and unchallenged) rule. Compliance with the standards is measured by calculating a sales-weighted mean of the fuel economies of a given manufacturer’s product line, with domestically produced and imported cars measured separately. The penalty for non-compliance is $5.50 for every 0.1 mpg below the standard, multiplied by the number of cars in the manufacturer’s new car fleet for that year. Civil penalties collected from 1983 to 2003 totaled slightly more than $600 million. However, these penalties have been paid mostly by small and speciality European manufacturers, not by the major U.S. or Japanese automotive manufacturers.

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Brent D. Yacobucci and Robert Bamberger

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Table 1. Fuel Economy Standards for Passenger Cars and Light Trucks: Model Years 2000 Through 2011 (miles per gallon) Model year

Passenger cars

Light trucksa

2000

b

27.5

20.7

2001

b

27.5

20.7

2002

b

27.5

20.7

2003

b

27.5

20.7

2004

b

27.5

20.7

2005

b

27.5

21.0

2006

b

27.5

21.6

2007

b

27.5

22.2

2008

b

27.5

22.2/c22.5

2009

b

27.5

22.2/c23.1

2010

b

27.5

22.2/c23.5

2011

b

27.5

22.2/d24.0

Source: Automotive Fuel Economy Program, Annual Update, Calendar Year 2001; U.S. Department of Transportation. National Highway Traffic Safety Administration, Light Truck Average Fuel Economy Standard, Model Year 2004, Final Rule; and U.S. Department of Transportation, National Highway Traffic Safety Administration. Average Fuel Economy Standards for Light Trucks Model Years 2008-2011, Final Rule (remanded to NHTSA in December 2007). a Standards for MY 1979 light trucks were established for vehicles with a gross vehicle weight rating (GVWR) of 6,000 pounds or less. Standards for MY 1980 to MY2000 are for light trucks with a GVWR of 8,500 pounds or less. Starting in MY2011, the light truck CAFE program will include medium duty passenger vehicles (MDPVs), trucks with a GVWR between 8,500 and 10,000 pounds that primarily transport passengers (e.g., large SUVs, passenger vans). b Established by Congress in Title V of the act. c Unreformed CAFE standard. These are standards that were part of the MY2008-MY201 1 NHTSA rule that was remanded back to the agency to be redone. d Average that was estimated by NHTSA in the proposed rule, based on MY201 1 reformed standard.

The effectiveness of CAFE standards since inception has been controversial. Since 1974, domestic new car fuel economy has roughly doubled; the fuel economy of imports has increased by roughly one-third. Some argue that these improvements would have happened as a consequence of rising oil prices during the 1970s and 1980s regardless of the existence of the CAFE standards. Some studies suggested that the majority of the gains in passenger car fuel economy during the 1970s and 1980s were technical achievements, rather than the consequence of consumers’ favoring smaller cars. Between 1976 and 1989, roughly 70% of the improvement in fuel economy was the result of weight reduction, improvements in transmissions and aerodynamics, wider use of front-wheel drive, and use of fuel-injection. The fact that overall passenger car fleet fuel economy remained comparatively flat during a period of declining real prices for gasoline also suggested that the CAFE program may have contributed to placing some sort of floor under new-car fuel economy. Recent and historic fleet fuel economy averages are shown in figure 1.

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Automobile and Light Truck Fuel Economy: The CAFE Standards

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Source: U.S. Department of Transportation, National Highway Traffic Safety Administration, Summary of Fuel Economy Performance, March 2007. Figure 1. Passenger Car and Light Truck Fuel Economy Averages for Model Years 1978-2006 (miles per gallon).

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MAJOR ISSUES IN THE CAFE DEBATE Some of the arguments made on behalf of, or in opposition to, raising CAFE or making significant changes in the program touched on long-standing themes that are also complex. These issues include: •

What is the effect of combining the passenger automobile and light-duty truck fleet for the purpose of calculating manufacturers’ average CAFE? During the congressional debate, some contended that it should make no difference whether the average is calculated across one entire fleet or weighted across two if an umbrella standard has to be met for the entire fleet. On the other hand, had the classes been kept separate, there might be differential effects of the standards on different vehicle classes. Opponents of eliminating the distinction between the fleets referred to that policy as “backsliding.” Under the CAFE program prior to the enactment of EISA, a manufacturer was required to meet the CAFE standard separately for its fleet of passenger cars produced in the United States and abroad. The CAFE of each could not be averaged across one another. A manufacturer could not earn CAFE credits for one fleet that could be applied to bring its other fleet into compliance, nor could manufacturers buy and sell credits from one another. The two-fleet rule had been crafted originally to protect the diversity of models manufactured in the United States. The United Auto Workers (UAW) argued that eliminating the distinction between foreign and domestic fleets could cost jobs in the industry domestically. The

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Brent D. Yacobucci and Robert Bamberger

•

•

•

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•

•

final bill retained the distinction between the two vehicle classes. The presumption is that this will place greater weight for fuel economy improvement on passenger cars than on light trucks. Will higher CAFE standards bring about a loss in jobs? Some argued that higher standards might compel manufacturers to make fewer vehicles that consumers want; as a result, older, less efficient vehicles might be retained longer. Others suggested that any impact on jobs in the industry would be selective — that is, unionized jobs might be more vulnerable if higher standards do affect demand for vehicles. What might be the effects of allowing credit trading among manufacturers and/or between passenger car and light trucks fleets? Under the previous structure of the CAFE program, automakers could bank excess CAFE credits for use in future years, but could not trade those credits with other automakers. Manufacturers also could not trade credits between their passenger car and light truck fleets — each fleet had to meet the standards independently. Under the fuel economy program restructure by EISA, credit trading is allowed. Supporters of this approach argued that it may improve the economic efficiency of the system and lower the cost of compliance. Opponents raised the possibility that allowing credit trading could lead to a competitive advantage for some manufacturers, and could affect auto industry employment. Do higher CAFE standards have an effect on gasoline price? There are many external and often short-term and cyclical variables that can affect gasoline prices. If higher standards do reduce overall oil demand from a baseline projection, world oil prices may be less volatile when an incident or sequence of events raises uncertainty about the adequacy and security of world supply. However, it is impossible to make any reliable projections given such a large universe of possible scenarios. How do attribute-based standards work, and what are the advantages and disadvantages of them? Any system for regulating CAFE will have winners and losers, whether an attribute-based system, or the previous straight-line average. Additionally, the choice of which attribute or attributes on which to base CAFE will also affect individual automakers differently. Under the new system, NHTSA will set a fuel economy target calculated for each new car as a mathematical function of individual vehicle attributes. The final regulations developed by NHTSA may, for example, base standards on vehicle size — or footprint. Under that scenario — and visualized on a graph — each year’s standard would no longer be represented by a single line, but appear instead as a curve that would peg a desirable fuel economy target for vehicles based upon their footprint. In successive model years, the curve would be replotted, with the intention of reaching a designated CAFE fleetwide average in some future model year. No individual vehicle would be required to meet a specific fuel economy standard, but the average of the fleet would need to meet or exceed the average of the individual vehicles’ size-based targets. (See figure 2 in the detailed discussion below.) Are there arguments to be made for and against designating CAFE standards as an expression of both miles per gallon and as grams per mile of CO2 emissions? One bill (H.R. 2927) included such a provision. Technically, CO2 emission rates are not measures of fuel economy but of greenhouse gas emissions. However, there may be few ways to reduce emissions other than increased fuel economy. Currently, states

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may establish emissions standards under the Clean Air Act, but are preempted from setting fuel economy standards by the Energy Policy and Conservation Act (EPCA). Amending EPCA to establish CAFE standards both in terms of miles per gallon and grams per mile of CO2 could have a bearing on states’ authority to regulate CO2. On April 2, 2007, the Supreme Court issued its ruling in a case (Commonwealth of Massachusetts v. EPA) brought by 12 states and the District of Columbia that challenged the Environmental Protection Agency’s (EPA) decision not to regulate greenhouse gas emissions from automobiles. The Supreme Court decision upheld the petition and requires EPA to regulate CO2 emissions.[2] A ruling of the U.S. Court of Appeals for the Ninth Circuit overturning the final rule promulgated in April 2006 setting light truck fuel economy standards for MY2008-MY201 1 was based, in part, on a determination that NHTSA failed to thoroughly analyze the effect of the final rule on CO2.

HOW THE INTERIM RULE FOR MY2011-MY2015 WOULD WORK

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Overview of the Rule On April 22, 2008, NHTSA released a Notice of Proposed Rulemaking (NOPR) that would establish fuel economy standards for model year MY201 1- MY2015 passenger cars and light trucks. Under the rule, cars and light trucks would have a fuel economy “target” based on a specific vehicle’s “footprint” (the product of wheelbase and track width), with higher targets for smaller vehicles and lower targets for larger vehicles. For a given model year, the targets for a manufacturer’s fleet would be averaged to calculate that manufacturer’s mandated fuel economy. The agency’s estimate of costs, benefits and net benefits from the proposed rule are shown in table 3. The agency estimates that the total benefits of the proposed passenger care rule would be roughly $31 billion over the lifetime of the 5 model years. “Societal benefits,” the agency notes, includes “direct impacts from lower fuel consumption as well as externalities such as reduction of air pollutants and greenhouse gases.”[3] After netting out the $15.8 billion cost of the rule, the net societal benefit is estimated at $15.1 billion from the improvement in passenger car fuel economy. For the proposed light truck standard, the table shows $57.3 billion in gross benefits, nearly $31 billion in costs, and a net societal benefit of $26.4 billion. For both classes of vehicles, the greatest percentage of benefits — an estimated 84-85% percent — is projected to accrue to consumers. The 15-16 percent balance of benefits is attributed to environmental benefits, and a reduction in oil imports. However, it’s important to note that the agency calculations assume a lower gasoline price — of $2.26 to $2.51 per gallon — than was being observed when the NOPR was released.[4]

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Brent D. Yacobucci and Robert Bamberger Table 2. NHTSA-Estimated Societal Benefits and Costs From Proposed CAFE Rule Passenger Cars Model Year

Total

2011

2012

2013

2014

2015

2011-2015

Benefits Costs

2,596 1,884

4,933 2,373

6,148 2,879

7,889 3,798

9,420 4,862

30,986 15,796

Net Benefits

712

2,560

3,269

4,091

4,558

15,190

Light Trucks

Benefits Costs

Model Year 2011 2012 3,909 8,779 1,649 4,986

2013 13,560 7,394

2014 14,915 8,160

2015 16,192 8,761

Total 2011-2015 57,355 30,949

Net Benefits

2,260

6,166

6,755

7,431

26,406

3,793

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Source: U.S. Department of Transportation. National Highway Traffic Safety Administration. Average Fuel Economy Standards Passenger Cars and Light Trucks Model Years 2011-2015. [Docket No. NHTSA-2008 -0089] p. 292.

To date, the CAFE standards have not applied to vehicles over 8,500 pounds GVW. Vehicles between 8,500-10,000 pounds GVW, which are categorized as medium-duty passenger vehicles (MDPV) would be included under the proposed rule, beginning in MY201 1. Before MY2004, these vehicles were considered heavy- duty vehicles for both fuel economy and emissions purposes. For the purposes of emissions standards, starting in MY2004, the Environmental Protection Agency (EPA) first defined MDPVs and included them in the “Tier 2” emissions standards for passenger cars and light trucks. The justification at the time was that these vehicles are used primarily as passenger vehicles, and should be regulated as such. NHTSA reached a similar conclusion, adding that fuel economy standards for MDPVs were feasible, and that standards would save additional fuel — approximately 250 million gallons over the operating life of MY201 1 MDPVs. Under the proposed rule, work trucks (such as long-bed pickups and cargo vans), and trucks described as “multi-stage,” (built in stages by more than one manufacturer) would be excepted from regulation.[5] Work trucks may subsequently come under CAFE regulation, but EISA directed first that the National Academy of Sciences conduct a study on the feasibility of including work trucks, with NHTSA to conduct a subsequent evaluation of its own.

Reformed Standards Prior to the passage of EISA, one of the key criticisms of the CAFE structure was that increased CAFE standards promoted smaller, lighter vehicles because fuel economy tends to decrease as vehicles get heavier. The concern was that fuel economy standards would be met to a great degree by decreasing vehicle weight. Because larger vehicles tend to offer greater

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Automobile and Light Truck Fuel Economy: The CAFE Standards

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passenger protection in accidents, and tend to be heavier, a fuel economy program structure that does not factor vehicle size into the setting of CAFE standards could promote the use of smaller, less safe vehicles. A corollary and further criticism of the program was that it favored producers of smaller vehicles that would tend to be more fuel efficient. Some proponents of higher CAFE standards responded by arguing that, through the use of new technology, vehicle efficiency can be improved without affecting size or performance. Under the proposed rule, fuel economy targets vary with vehicle size, with smaller vehicles required to achieve higher fuel economy than larger vehicles. Under the system in the proposed rule, each vehicle would be assigned a fuel economy “target” based on its footprint, which is the product of a vehicle’s track width (the horizontal distance between the tires) and its wheelbase (the distance from the front to the rear axles). The average of the targets for a manufacturer’s fleet is the CAFE average that the manufacturer must achieve in a given model year. In this way, no specific vehicle is required to meet a specific fuel economy, but the average fuel economy required will vary from manufacturer to manufacturer.

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The Challenge to the Rule and Court Decision As noted earlier, a November 15, 2007, decision by the U.S. Court of Appeals for the Ninth Circuit overturned a final rule issued by NHTSA in April 2006 establishing fuel economy standards for light trucks, MY2008-MY20 11. The Court ruled that NHTSA had not conducted a sufficiently rigorous analysis to measure whether the standards would have a beneficial effect in improving environmental quality through reduction of greenhouse gas emissions. Eleven states, the District of Columbia, New York City, and four public interest organizations had petitioned for review of the final rule governing light truck fuel economy for MY2008-MY20 11. In its decision, the Court ruled that NHTSA would have to promulgate a new rule that, among other elements, assessed the costs and benefits from different levels of standards in reducing carbon dioxide (CO2) emissions. Among the petitioners’ arguments were that the cost-benefit analysis performed by NHTSA assigned no benefit to reducing CO2 emissions, and that the rule did not establish a floor fuel economy that an individual manufacturer had to achieve in a given model year. At this point, there would be no reason for NHTSA to resubmit its rule for MY2008MY20 11 because there is insufficient advance notice to the manufacturers, whose product lines are planned well in advance of their introduction. The analysis accompanying the NOPR for MY201 1-MY2015 appears intended to address the deficiencies identified by the Court in the earlier rulemaking. Whether, if challenged, the Court would find it sufficient is uncertain. However, there is some prospect of a challenge should NHTSA issue a final rule that maintains, as is expressed in the NOPR, that any state regulation that affects fuel economy, including any state regulation governing tailpipe emissions, is forbidden by EPCA. The text of the NOPR observes (with emphasis added): For those rulemaking actions undertaken at an agency’s discretion, agencies [are instructed] to closely examine their statutory authority supporting any action that would limit the policymaking discretion of the States and assess the necessity for such action. This is not such a rulemaking action. NHTSA has no discretion not to issue the CAFE

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Brent D. Yacobucci and Robert Bamberger standards proposed in this document. EPCA mandates that the issuance of CAFE standards for passenger cars and light trucks for model years 2011-2015. Given that a State regulation for tailpipe emissions of CO2 is the functional equivalent of a CAFE standard, there is no way that NHTSA can tailor a fuel economy standard so as to avoid preemption. Further, EPCA itself precludes a State from adopting or enforcing a law or regulation related to fuel economy (49 U.S.C. 32919(a)).[6]

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CAFE AND REDUCTION OF CARBON DIOXIDE EMISSIONS: ADDITIONAL HISTORY AND DISCUSSION Carbon dioxide emissions clearly figured into the challenge and ruling on the NHTSA MY2008-MY20 11 light truck fuel economy rulemaking. Mobile sources are a key source of greenhouse gas (GHG) emissions in the United States. Transportation accounts for roughly one-third of all U.S. carbon dioxide (CO2) emissions. Passenger vehicles alone represent roughly 60% of transportation emissions, or roughly 20% of total U.S. CO2 emissions. Because passenger vehicles play such a significant role in U.S. GHG emissions, there is growing interest in reducing their emissions as part of a strategy to address climate change concerns. In general, there are three ways to reduce vehicle greenhouse gas emissions. These choices are to: (1) reduce vehicle miles traveled (through strategies such as carpooling, transit, or teleworking); (2) reduce vehicle per-mile fuel consumption (through improved fuel economy) and per-mile non-carbon emissions[7] (through improvements in vehicle systems); and (3) convert to lower-carbon transportation fuels. As a consequence, there is likelihood that any program to reduce GHG emissions will likely raise fuel economy. Conversely, any program to increase fuel economy will lower GHG emissions. There is some debate whether raising the CAFE standards would be an effective or marginal way to reduce emissions of carbon dioxide. On one hand, improvements in fuel economy should enable the same vehicle to burn less fuel to travel a given distance. However, to the extent that technologies to improve fuel economy add cost to new vehicles, it has been argued that consumers will tend to retain older, less efficient cars longer. Further, improving fuel economy lowers the per-mile cost of driving. To the extent that fuel savings are reduced by additional driving, the reduction in greenhouse gas emissions will also be offset some. This is what is referred to as the “rebound effect.” Perhaps the most significant current issue regarding automotive fuel economy has its origins in the 2002 decision by the state of California to require carbon dioxide emissions standards for passenger cars and light trucks. Legislation passed by the state legislature that year, A.B. 1498, requires the state to promulgate regulations to achieve the maximum feasible and cost-effective reduction of greenhouse gases from cars and trucks. The regulations, adopted by the California Air Resources Board on September 24, 2004, require a reduction of greenhouse gas emissions of 30% by 2016. The regulation covers passenger vehicles, but would not affect heavier vehicles such as commercial trucks or buses. Although states do not have authority to regulate fuel economy, under the Clean Air Act California solely may be granted an exemption from restrictions on setting vehicle pollutant emissions standards — subject to the state filing a petition with the Environmental Protection Agency (EPA) and being granted a waiver by that agency. Any state-established standards

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must be at least as stringent as the federal standards, and as long as they are needed to meet “compelling and extraordinary conditions.”[8] While only California can petition for a waiver, other states may adopt any California standards that are put into place following the granting of the waiver. Several auto manufacturers and dealers challenged the California auto greenhouse gas standard in court. (Central Valley Chrysler-Jeep, Inc., vs. Witherspoon, No. 1:04-CV-06663, E.D. Cal., filed December 7, 2004.) The plaintiffs argued that California lacks the authority to establish standards that are almost certain to bear on vehicle fuel economy requirements, and that greenhouse gases are not a pollutant under the Clean Air Act. California officials maintain that they have the authority under the Clean Air Act to regulate vehicle greenhouse gas emissions. The state estimates that complying with the standard could cost $1,000 per vehicle by 2016, while opponents argue that costs could be as much as $3,000 per vehicle. Depending upon the cost of compliance, the new standards could reduce demand for new vehicles. The impact of the standards on manufacturers would likely vary depending upon the mix of vehicles they offer. In early 2007, the Court indicated that it would withhold a decision, pending resolution by the Supreme Court of a case that might bear on the one before the Court. On April 2, 2007, the Supreme Court issued its ruling on that related case (Commonwealth of Massachusetts v. EPA). In that case, 12 states and the District of Columbia challenged EPA’s decision not to regulate greenhouse gas emissions from automobiles, arguing that EPA has the responsibility to set greenhouse gas standards for passenger vehicles. Under that decision, EPA is required to establish greenhouse gas standards for automobiles or explicitly justify why such standards are not “justified.” The decision in that case will likely affect the outcome of the case against California.9 On December 11, 2007, the United States District Court for the Eastern District of California ruled that both EPA and California, through the waiver process, are “equally empowered” to regulate GHG, and that preemption of state laws regulating fuel economy did not preempt the proposed California standard to reduce GHG. Then, on December 19, 2007, EPA Administrator Stephen Johnson sent a letter to California Governor Arnold Schwarzenegger informing him of EPA’s plan to deny California’s waiver request. Without this waiver, California’s program cannot move forward. EPA’s rationale appeared to consist of two arguments: first, that California has not shown that its regulations are needed to meet compelling and extraordinary conditions, as required by the Clean Air Act; and second, that the Administration and Congress are addressing climate change through national standards. Specific reference was made to the newly enacted CAFE standards in EISA as addressing vehicle emissions. Officials in California were not satisfied by the agency explanation for its decision. On January 2, 2008, California (along with 15 other states) filed a suit against EPA in the U.S. Court of Appeals, 9th Circuit, challenging EPA’s rejection of the petition.

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OVERVIEW OF CONGRESSIONAL INTEREST IN CAFE (1991-2005) Significant efforts to raise CAFE began in the early 1990s and were highly controversial. One proposal included in omnibus energy legislation was so controversial that it contributed to an insufficient number of votes in the Senate in 1991 to bring the bill up for debate on the floor. A general criticisms of raising the CAFE standards was that, owing to the significant lead times manufacturers need to change model lines and because of the roughly ten years it generally takes for the vehicle fleet to turn over, increasing CAFE is a slow and inefficient means of achieving reductions in fuel consumption. Further, it was argued that the standards risked interfering with consumer choice and jeopardizing the economic well-being of the automotive industry. Opponents of raising CAFE have often cited a concern that higher efficiency will likely be obtained by decreasing vehicle size and weight, jeopardizing vehicle safety. Proponents of CAFE increases have argued that boosting the standards could bring about the introduction of technological improvements that would not compromise features that consumers value, but which would otherwise not be added because of the increase in vehicle cost stemming from these improvements. Language in the FY1996-FY2000 Department of Transportation (DOT) Appropriations prohibited expenditures for any rulemaking that would make any adjustment to the CAFE standards. In conference on the FY2001 appropriations, the Senate insisted that the language be dropped, opening the way for NHTSA to initiate rulemakings once again. The conferees also agreed to authorize a study of CAFE by the National Academy of Sciences (NAS) in conjunction with DOT. That study, Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards, released on July 30, 2001, concluded that it was possible to achieve more than a 40% improvement in light truck and SUV fuel economy over a 10- to 15year period at costs that would be recoverable over the lifetime of vehicle ownership. A study released in December 2004 by the National Commission on Energy Policy, Ending the Energy Stalemate: A Bipartisan Strategy to Meet America’s Energy Challenges, established by foundation money, recommended that Congress instruct NHTSA to raise CAFE standards over a five-year period beginning not later than 2010. The commission recommended that manufacturers be able to trade fuel economy credits earned by exceeding the standards. A draft report from the National Petroleum Council, “Facing the Hard Truths About Energy: A Comprehensive Review to 2030 of Global Oil and Gas,” released in late July 2007 argued that vehicle fuel efficiency could be doubled by 2030 “through the use of existing and anticipated technologies,” and “assuming vehicle performance and other attributes remains the same as today.” The draft report noted that technologies to improve fuel efficiency had been used to compensate for the addition of horsepower and other “amenities” to current vehicles. The Council estimated that doubling fuel economy could achieve a savings of 3-5 million barrels a day by 2030.10 The Energy Policy Act of 2005 (P.L. 109-58) authorized $3.5 million annually during FY2006-FY2010 for NHTSA to carry out fuel economy rulemakings. It also required a study (submitted to Congress in August 2006) to explore the feasibility and effects of a significant reduction in fuel consumption by 2014, and required that the estimated in-use fuel economy posted to the window of new vehicles more closely approximate owners’ experience.

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In August 2006, NHTSA issued to Congress the report “Study of Feasibility and Effects of Reducing Use of Fuel for Automobiles.” The report concluded that NHTSA’s light truck rulemaking will lead to significant reductions in fuel consumption, and that granting NHTSA the authority to establish similar rules for passenger cars would lead to even greater reductions.

In-Use Fuel Economy Estimates The fuel economy of individual vehicles is calculated by running vehicles through a test on a dynamometer intended to simulate a driving cycle that assumes 11 miles driven in an urban setting and 10 miles on open highway. To bring this calculation more into line with inuse fuel economy experienced by drivers, the EPA makes a downward adjustment of 10% for the city portion of the cycle and 22% for the highway portion. However, many argued in the past that this adjustment was no longer sufficient, and that the gap between estimated fuel economy and actual in-use fuel economy had widened significantly. EPACT required a revision of the adjustment factor applied against tested vehicle fuel economy to estimate consumer in-use fuel economy. On December 11, 2006, EPA finalized a rule to incorporate the effect of factors such as higher speed limits, faster acceleration, differences in the ratio between city and highway driving, and use of air conditioning on inuse fuel economy. The in-use fuel economy stickers posted to the windows of new cars will reflect the results of these tests beginning in MY2008.11 The change affects only the estimation of in-use fuel economy. It does not affect the CAFE calculation for purposes of determining manufacturers’ compliance with the CAFE standard.

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FOR ADDITIONAL READING National Petroleum Council. Facing the Hard Truths about Energy (2007). National Research Council. Committee on the Effectiveness and Impact of Corporate Average Fuel Economy Standards. Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards. Washington, D.C., National Academy Press, 2001. 166 p. Greene, D.L., P.D. Patterson, M. Sing and J. Li. (2004). “Feebates, Rebates and Gas-Guzzler Taxes: A Study of Incentives for Increased Fuel Economy,” Energy Policy, vol. 33, no. 6, pp. 721-827, June 2004. U.S. Congressional Budget Office. Reducing Gasoline Consumption: Three Policy Options. November 2002. 36 p. U.S. Congressional Budget Office. The Economic Costs of Fuel Economy Standards Versus A Gasoline Tax. December 2003. 37 p. U.S. Environmental Protection Agency. Fuel Economy Labeling of Motor Vehicles: Revisions To Improve Calculation of Fuel Economy Estimates. 71 Federal Register 77871. December 27, 2006. U.S. Department of Transportation. National Highway Traffic Safety Administration. Average Fuel Economy Standards. Passenger Cars and Light Trucks Model Years 20112015, p. 378-379. [Docket No. NHTSA-2008-0089]

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U.S. Department of Transportation. National Highway Traffic Safety Administration. Light Truck Average Fuel Economy Standards, Model Years 2005-2007. 68 FR 16867; April 7, 2003. U.S. Department of Transportation. National Highway Traffic Safety Administration. Automotive Fuel Economy Program. Annual Update, Calendar Year 2004. [http ://www .nhtsa.dot.gov/staticfiles/DOT/ NHTSA/Vehicle%20Safety/CAFE/2004_Fuel_Economy_Program.pdf] U.S. Federal Register. Department of Transportation. National Highway Traffic Safety Administration. Average Fuel Economy Standards for Light Trucks Model Years 20082011. Final Rule. Vol. 71, No. 66. Thursday, April 6, 2006, pp. 17566-17679. [http ://www.nhtsa.dot.gov/staticfiles/DOT/NHTSA/ Rulemaking/Rules/Associated%20Files/2006FinalRule.pdf] United States Court of Appeals, Ninth Circuit. Center for Biological Diversity vs. National Highway Traffic Safety Administration. Argued and Submitted August 14. 2007. Filed November 15, 2007. See [http://www.altlaw.org/v1/cases/ 218574.pdf].

REFERENCES [1] [2] [3]

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[4] [5]

[6]

[7] [8]

Light-duty trucks include most sport utility vehicles (SUVs), vans, and pickup trucks. See additional discussion later in this report, “CAFE and Reduction of Carbon Dioxide Emissions.” U.S. Department of Transportation. National Highway Traffic Safety Administration. Average Fuel Economy Standards Passenger Cars and Light Trucks Model Years 20112015. [Docket No. NHTSA-2008 -0089], p. 289. Ibid., p. 290. Under the provisions of EPCA, NHTSA has had the authority to regulate the fuel economy of vehicles up to a gross vehicle weight (GVW) of 10,000 pounds if, after study, it was determined that it was feasible to set standards for these vehicles, and if there was evidence that the vehicles were used for the same purposes as passenger automobiles, and that including them under CAFE regulation would save a significant amount of fuel. In EISA, Congress directed that vehicles up to 10,000 pounds be subject to CAFE standards, eliminating the need for any administrative determination that there were grounds to include them. U.S. Department of Transportation. National Highway Traffic Safety Administration. Average Fuel Economy Standards. Passenger Cars and Light Trucks Model Years 2011-2015, p. 378-379. [Docket No. NHTSA-2008 -0089] E.g., fluorinated gas emissions from air conditioner systems. For more information on the Clean Air Act waiver process, see CRS Report RL34099, California’s Waiver Request to Control Greenhouse Gases Under the Clean Air Act.

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Chapter 2

ENERGY EFFICIENCY: OPPORTUNITIES EXIST FOR FEDERAL AGENCIES TO BETTER INFORM HOUSEHOLD CONSUMERS *

United States Government Accountability Office ABBREVIATIONS

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AHAM ASE CEA CEC CEE DOE DVD EIA EPA EPCA FTC GAO NASEO NYSERDA VCR

Association of Home Appliance Manufacturers Alliance to Save Energy Consumer Electronics Association California Energy Commission Consortium for Energy Efficiency Department of Energy digital video disc Energy Information Administration Environmental Protection Agency Energy Policy and Conservation Act of 1975 Federal Trade Commission Government Accountability Office National Association of State Energy Officials New York State Energy Research and Development Authority video cassette recorder

September 26, 2007 The Honorable Jeff Bingaman Chairman Committee on Energy and Natural Resources United States Senate *

This is an edited, excerpted and augmented edition of a United States Government Accountability Office publication, Report GAO-07-1162, dated September 2007.

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United States Government Accountability Office

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Dear Mr. Chairman: Household energy use accounts for nearly one-fourth of all energy consumed in the United States, amounting to more than $200 billion per year spent by consumers. Recent increases in energy prices have heightened consumers’ interest in making their households more energy efficient. To this end, the federal government manages two key efforts–– EnergyGuide and Energy Star––to inform consumers about the energy consumed by certain household products. EnergyGuide is a mandatory labeling program created under the Energy Policy and Conservation Act of 1975 (EPCA)[1] and administered by the Federal Trade Commission (FTC) with assistance from the Department of Energy (DOE). It requires manufacturers to label and prominently display information about the energy consumption and annual energy costs of 11 categories of household products.[2] In recent years, manufacturers have used adhesive backed labels adhered to appliances and so-called “hang tags” loosely attached to the interior or exterior of appliances. In its August 2007 revisions to the rule, FTC, among other things, prohibited the use of hang tags on the exterior of appliances, but continues to allow them on the inside.[3] The law requires retailers to provide this information in catalogs offering products for sale. In 2000, FTC interpreted its authority over catalogs to encompass Web sites and required retailers to provide the same information on Web sites where consumers may purchase such products. The law prohibits retailers from removing labels placed by manufacturers or making them illegible. Also, EPCA requires DOE, in consultation with FTC, to study new product categories to determine whether they should be added to the EnergyGuide program and to report annually on the energy savings of the program. Energy Star is a voluntary labeling program created in response to the Clean Air Act amendments of 1990[4] and the Energy Policy Act of 1992[5] and jointly administered by the Environmental Protection Agency (EPA) and DOE. In general, it is designed to identify models for 26 categories of household products that, without sacrificing performance, are the most energy efficient (the top 25 percent).[6] Manufacturers are permitted to apply the Energy Star logo to products that the manufacturers identify are qualified, based on EPA or DOE criteria. Figure 1 shows examples of the EnergyGuide label and the Energy Star logo that consumers see in retail stores and on Web sites. Standards for internal control in the federal government require federal agencies, including FTC, EPA, and DOE, to establish goals, measure performance, and report program costs and accomplishments in order to improve management and program effectiveness.[7] In this context, you asked us to analyze the EnergyGuide and Energy Star programs to determine (1) how these programs have changed over time, (2) how federal agencies verify the accuracy of the energy consumption estimates for household products covered by these programs, (3) the actions federal agencies take to ensure that the EnergyGuide is available to consumers and that the Energy Star logo is not misused, and (4) how federal agencies measure the effectiveness and cost of these programs. We provided a briefing to your staff on the results of our work in June 2007. This chapter summarizes and formally transmits the information provided to your staff during that briefing. It incorporates formal comments and technical comments provided by agencies since the briefing.[8] The attached slides provide more details on our findings and suggested actions.

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Sources: (left to right) FTC and EPA.

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Figure 1. EnergyGuide Label and Energy Star Logo.

To perform our review, we interviewed agency officials and staff, representatives from trade associations, major retailers, manufacturers, and experts; and reviewed literature, authorizing legislation and regulations,[9] program materials, and program accountability documents. In addition, we inspected about 4,000 individual appliances displayed for sale in 30 retail stores across 5 cities and inspected about 3,600 Web sites to evaluate compliance with the EnergyGuide and Energy Star programs. We also examined Energy Information Administration estimates and projections of household energy consumption over time. We performed our work from November 2006 through September 2007 according to generally accepted government auditing standards.

SUMMARY EnergyGuide Overall, opportunities exist for the EnergyGuide program to improve how it provides information that could help consumers improve their households’ energy efficiency and decrease energy consumption nationally: •

The EnergyGuide program has changed little over time, even though energy consumption patterns are changing substantially. For example, televisions,[10] computers, and other product categories––which are expected to account for nearly

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United States Government Accountability Office

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•

•

half of household energy consumption by the year 2020––do not currently require an EnergyGuide label. Although FTC has pursued labeling for some products that are covered by law but are currently not subject to labeling, such as televisions, it does not have independent authority under EPCA to add some new products to the EnergyGuide program, such as computers and microwave ovens. FTC has added new categories only five times since the program was first implemented in 1980, according to a program official, and only when required by law. Although DOE, in consultation with FTC, is required to study new products to determine if any products should be added to EnergyGuide, DOE staff could not identify any instance of such a study, and told us that they have not completed one for at least 10 years. FTC is not required to, and does not, independently verify energy consumption estimates provided by manufacturers. FTC staff told us they rely on manufacturers to verify competitors’ energy consumption estimates and to report any problems to FTC. However, FTC only tracks some of the complaints it receives from manufacturers and therefore could not provide the exact number of complaints it receives about the EnergyGuide program. FTC staff told us it does not track complaints about the EnergyGuide program because it receives only a few each year and does not need a formal, systematic method for tracking these few or their resolution. According to FTC staff, there was little evidence to suspect a significant pattern of widespread misreporting of EnergyGuide information because of the small number of complaints they had received. In a related issue, energy efficiency experts and agency officials told us that computer controls in modern appliances can enable appliances to detect test conditions and temporarily reduce energy use, making it difficult to ensure that tests accurately measure energy consumption under normal operating conditions. According to one manufacturer and a consumer group, another manufacturer may have used computer controls to manipulate energy tests and to register lower-than-normal energy consumption. DOE reviewed the matter and found that the manufacturer had complied with the law, but DOE is considering changing its rules to prevent manufacturers from manipulating energy tests in the future. Without such changes, FTC could face increasing difficulties in ensuring that EnergyGuide provides consumers with accurate estimates of appliances’ energy efficiency. FTC does not know whether EnergyGuide is available to consumers because it has undertaken no significant efforts since 2001 to ensure EnergyGuide’s availability to consumers in showrooms and on Web sites. GAO’s inspections of major appliances found that EnergyGuide often is unavailable or difficult to use when consumers are purchasing products. GAO’s inspections of appliances subject to EnergyGuide in retail showrooms found that 26 percent of these appliances lacked an EnergyGuide label, and another 24 percent of labels were no longer affixed in a prominent and easily accessible location. For example, many EnergyGuide labels were folded or crumpled, hidden by racks or bins, or placed upside down or backward inside appliances—this was the case for both adhesive backed and hang tags. Furthermore, we observed some changes in the retail environment that may prevent the EnergyGuide label from being easily accessible, such as the growing number of warehouse retailers that sell appliances such as water heaters still in the manufacturer’s shipping boxes (with the EnergyGuide label not visible) as opposed

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•

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to displaying unboxed appliances in a showroom. In addition, GAO examined about 3,600 products on Web sites of major appliance retailers and found that about 12 percent of these products lacked EnergyGuide information, and another 44 percent had links to EnergyGuide information that were difficult to find and use. According to FTC staff, although FTC has taken steps since 2001 to ensure that EnergyGuide information is available to consumers, there have been no enforcement actions for this program since 2001 because the agency has limited resources and has given the EnergyGuide program a lower priority than its other enforcement priorities. FTC staff told us they have adequate authority to ensure the EnergyGuide is available on Web sites; however, they told us they lack specific statutory authority to ensure that retailers display the EnergyGuide in showrooms. According to these staff, the current statute does not require retailers to ensure that the EnergyGuide label is available to consumers in showrooms; it only prohibits them from removing it. In addition, staff told us enforcement actions are difficult because FTC must prove that retailers removed the EnergyGuide labels. FTC does not measure the overall effectiveness or costs of the EnergyGuide program, contrary to federal standards for internal controls, and DOE does not measure the energy savings of the program, as required by law. Although FTC staff told us that a recent survey measured effectiveness by asking consumers whether EnergyGuide was useful, FTC has not examined whether the program is achieving its goal of improving energy efficiency. FTC staff told us they did not examine the effectiveness and costs of the EnergyGuide program, and in particular did not measure the effectiveness of the program in saving energy because it would be difficult and would not be useful. DOE is required by EPCA to annually estimate the energy savings of the EnergyGuide program, but DOE staff were unable to provide us with any recent annual estimate.

Energy Star Overall, Energy Star has been generally successful in identifying and highlighting the most energy efficient products, but faces some challenges:[11] •

Energy Star has regularly expanded to include new products and keep pace with a changing market. However, 6 of 26 categories of household products currently qualify for Energy Star based on factors other than the estimated total energy consumption. For example, some products—including televisions, home audio products, DVD players, and stereos—qualify for Energy Star based on how much energy these devices consume when they are in standby mode, which may account for only a small percentage of total energy consumption. In the case of one Energy Star-qualified plasma television that we reviewed, standby power accounted for less than 10 percent of the annual estimated total energy consumption. However, the total energy consumed by the television amounted to more than the total annual energy consumption of some refrigerators. EPA officials told us televisions would qualify for Energy Star based on total energy consumption starting in 2008, and they are

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•

•

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•

considering similar changes for some other product categories, unless it is appropriate to continue using standby power. In addition, for a few product categories, Energy Star no longer highlights only the most energy efficient models. In these cases, Energy Star- qualified products account for well over the program’s general goal of identifying the top 25 percent of products available in a particular category. As a case in point, more than 70 percent of dishwashers sold from 2004 to 2006 qualified for the Energy Star before new qualifying criteria were implemented in 2007. According to one DOE official, this occurred because it took longer than expected to revise its criteria to identify only the most energy efficient models. DOE and EPA test some products to verify their energy consumption estimates, but generally rely on manufacturers to verify competitors’ efficiency estimates. EPA and DOE officials told us that they did not believe further verification testing is needed because manufacturers would report discrepancies they find while testing competitors’ products. Again, experts and agency officials told us that the computer controls in modern appliances make it difficult to accurately test normal energy consumption. In a related issue, DOE officials reiterated concerns expressed by some manufacturers that their competitors may have used computer controls to manipulate energy tests in the United States, and that this has been a widespread problem in another country. In its comments, DOE reported that it is considering changing its rules to prohibit manufacturers from manipulating energy tests in the future. Without such changes, DOE could face increasing difficulties in ensuring that Energy Star informs consumers about energy efficient products. EPA monitors stores, Web sites, and advertising to prevent misuse of the Energy Star label and follows up on problems. GAO inspections found few instances of the Energy Star mark being misused. DOE and EPA conduct efforts to measure the effectiveness of the Energy Star program which are useful but have limits. To measure effectiveness, DOE analyzes sales data to estimate energy savings, which were about $7 billion per year.[12] Separately, EPA analyzes a consumer awareness survey of the Energy Star program. However, this survey does not assess how many additional energy-efficient products are purchased due to awareness of the Energy Star program. Agency officials recognized that this would be useful, but told us developing more extensive analysis of the program’s impact would be difficult.

CONCLUDING OBSERVATIONS EnergyGuide and Energy Star share the laudable goal of providing information to help consumers reduce their household energy consumption, thereby reducing energy consumption nationally. However, there are opportunities to improve the programs’ long-term effectiveness that require the attention of Congress and the agencies. The EnergyGuide program’s familiar yellow label has aided consumers for over 25 years, but the lack of timely additions of new product categories has left consumers with little meaningful information about the energy efficiency of some of the most common and most energy-consuming household products. Moreover, because of changes in the current retail

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environment such as the growth of warehouse retailers and Web-based appliance sales, because statutory authority does not specifically require enforcement in some instances, and because FTC does not verify and enforce the display of the EnergyGuide label in retail stores, the effectiveness of the EnergyGuide program as it is currently implemented may be diminished. It is clear that consumers making purchasing decisions can only benefit from the EnergyGuide when it is available and easy to find and use. The August 2007 revisions to the labeling rule may address one source of missing labels—missing labels that were attached to the outside of the appliance—but do not appear focused on addressing the other problems we found with adhesive backed labels, hang tags initially attached on the inside, nor problems we found on Web sites. Overall, FTC’s position is that it lacks resources and sufficient authority for more robust enforcement in retail stores. However, there may be opportunities for FTC to enhance enforcement within existing authority by coordinating its enforcement activities with existing Energy Star enforcement activities to reduce costs. In addition, FTC could improve the value of consumer and manufacturer complaints as a monitoring tool if it tracked complaints and their resolution. Moreover, without a meaningful assessment of the effectiveness and costs of the EnergyGuide program, FTC and Congress lack information that could help them empower consumers to improve household energy efficiency. In contrast, Energy Star has regularly expanded to keep pace with the market and consumers generally equate the Energy Star logo with better energy efficiency than comparable products. However, EPA and DOE’s efforts to raise consumers’ awareness of the Energy Star program may be undermined and consumers may be confused if program officials continue to allow products to qualify for Energy Star based on factors other than total energy consumption, such as energy used in standby mode, which may account for only a small percentage of total energy consumption for many devices. Moreover, both programs may face emerging challenges as computerized controls become more common in appliances and other products, making it more difficult to measure their true energy consumption.

MATTER FOR CONGRESSIONAL CONSIDERATION To ensure that consumers have consistent access to information about the energy efficiency of household products, Congress may wish to consider granting FTC with specific authority to require retailers to prominently display the EnergyGuide in retail showrooms.

RECOMMENDATIONS FOR EXECUTIVE ACTION To ensure that consumers have access to information about the energy efficiency of household products, we recommend that the Chairman of the Federal Trade Commission and the Secretary of Energy take the following four actions: •

To ensure that consumers have access to information about the energy efficiency of the types of household products that account for a significant and growing portion of household energy consumption, such as computers and televisions, we recommend

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•

•

•

that the Secretary of Energy, in consultation with FTC, regularly review product categories not currently covered to assess whether they should be included in the EnergyGuide program. To ensure that the EnergyGuide program is effectively achieving its goal of improving household energy efficiency by establishing goals, measuring performance, and reporting program costs and accomplishments, we recommend that the Chairman of the Federal Trade Commission, as required under federal standards for internal control in the federal government, regularly measure the cost and, to the extent practical, the effectiveness of the EnergyGuide program. To assist FTC in measuring effectiveness, we also recommend that the Secretary of Energy measure the energy savings of the EnergyGuide program, as required by EPCA. To ensure that consumers have consistent access to accurate information about the energy efficiency of household products, we recommend that the Chairman of the Federal Trade Commission monitor the availability of the EnergyGuide label and, within existing authority, enforce compliance through periodic inspections of retailers’ showrooms and Web sites and by routinely and systematically tracking complaints, the issues they raise, and the manner in which these matters are resolved. To ensure that EnergyGuide remains effective in a changing retail market, we recommend that the Chairman of the Federal Trade Commission clarify FTC’s rules regarding the display of EnergyGuide information in the current retail environment, such as for warehouse retailers and Web-based product purchasing.

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AGENCY COMMENTS AND OUR EVALUATION We provided a draft of our chapter to DOE, EPA, and FTC for review and comment. We received written comments from all three agencies and they are presented in appendices III, IV, and V respectively. DOE said it strongly concurred with the statements and recommendations regarding its responsibilities and historical actions for the EnergyGuide and Energy Star programs. DOE also noted a series of steps it is undertaking to address three specific areas of concern: updating the EnergyGuide program, addressing the possible use of computer controls to circumvent DOE test procedures, and updating Energy Star qualifying criteria and test procedures. EPA’s comments clarified issues related to verifying manufacturers’ energy consumption estimates, updating Energy Star qualifying criteria, and explaining why some Energy Star products may qualify based on criteria other than total energy consumption. We incorporated these comments as appropriate. FTC noted in its comments that while the chapter contained helpful observations and suggestions, the Commission said that the chapter’s conclusions were based on factual inaccuracies and outlined several issues of concern, such as GAO’s characterization of FTC’s efforts to measure costs and effectiveness and their efforts to enforce compliance. As previously discussed, we disagree with FTC’s characterization of our chapter’s conclusions and note that FTC did not point out any material factual inaccuracies in their written comment letter on our draft. FTC also provided technical changes which were incorporated. FTC’s

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written comment letter and our detailed responses to issues raised by the Commission appear in appendix V. We continue to believe our chapter presents a fair presentation of the facts and issues associated with both programs and have not changed our recommendations.

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APPENDIX I: BRIEFING TO THE COMMITTEE ON ENERGY AND NATURAL RESOURCES, U.S. SENATE, JUNE 13, 2007

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APPENDIX II: SCOPE AND METHODOLOGY To determine the extent to which EnergyGuide and Energy Star programs for household products have changed over time, we reviewed authorizing legislation[13] and regulations, including the Federal Trade Commission’s (FTC) Appliance Labeling Rule[14] and other program materials documenting processes, guidance, and actions that agencies have taken to implement these programs. We also interviewed key federal agency officials and staff at the Department of Energy (DOE), Environmental Protection Agency (EPA) and FTC. In addition, we interviewed representatives of industry and trade associations, including the Association of Home Appliance Manufacturers (AHAM) and the Consumer Electronics Association (CEA); major manufacturers of household products and major retailers of household products and consumer electronics; energy efficiency experts identified on the basis of referral by key agency officials, staff, and other experts, including experts at a national laboratory; efficiency advocates, including the Consortium for Energy Efficiency (CEE) and the Alliance to Save Energy (ASE); consumer advocates, including Consumers Union; and the National Association of State Energy Officials (NASEO) and state energy offices in locations with significant outreach efforts, including the California Energy Commission (CEC) and the New York State Energy Research and Development Authority (NYSERDA). Further, we performed quantitative analysis of the Energy Information Administration’s (EIA) Annual Energy Outlook 2007 of residential energy consumption projections to evaluate the share of total household energy consumption not covered by the EnergyGuide over time. EIA’s consumption projections are not statements of what will happen but of what might happen, given the assumptions and methodologies used by EIA. As

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such, EIA’s projected data reflect known technological and demographic trends and current laws and regulations, and generally do not reflect potential impacts of pending or proposed legislation, regulations, and standards, or of unknown technologies. The projected data presented in this chapter reflect projected energy consumption for the scenario EIA considers to be the most likely; other scenarios reflected similar results. In the past, EIA projections of energy consumption have been relatively close to realized outcomes; however, it cannot be predicted how the underlying factors of EIA’s model will change in relation to one another or other currently unknown factors. We assessed the reliability of EIA projected data by performing manual testing of the data, reviewing related documentation, and interviewing Census officials regarding the uses of the data and the data’s internal controls. We found the data to be sufficiently reliable for the purpose of our analysis. To determine how federal agencies verify the accuracy of energy consumption estimates in the EnergyGuide and Energy Star programs, we reviewed legislative and regulatory requirements for developing energy consumption estimates and agency procedures including DOE’s test procedure for measuring energy consumption. We identified federal agencies’ efforts to verify energy consumption estimates by reviewing agency documentation[15] and interviewing key federal agency officials and staff at DOE, EPA, and FTC. We also interviewed major manufacturers of household products about their role in providing estimates and their efforts to verify competitors’ estimates of energy consumption. We identified efforts taken by other agencies and organizations to test appliances for energy consumption by interviewing individuals identified on the basis of referral by key agency officials and experts, including experts at a national laboratory, Consumers Union, CEC, and NYSERDA. Finally, we evaluated the extent to which circumvention of rules for developing energy consumption estimates has been detected in the United States and abroad by interviewing experts and reviewing the literature. To identify the actions DOE, EPA, and FTC take to ensure the EnergyGuide label is available to consumers and the Energy Star label is not misused, we reviewed legislative and regulatory requirements. We also reviewed program documentation on enforcement activities and interviewed key FTC staff about efforts taken to enforce compliance with the EnergyGuide program rules as well as DOE and EPA officials about efforts taken to ensure that the Energy Star label is not misused. We also examined the August 2007 revision of the Appliance Labeling Rule. In addition, we interviewed representatives of industry and trade associations, including AHAM and CEA, as well as major manufacturers of household products and major retailers of household products and consumer electronics. We interviewed energy efficiency experts identified on the basis of referral by key agency officials, staff, and other experts, including experts at a national laboratory; efficiency advocates, including CEE and ASE; consumer advocates, including Consumers Union; and NASEO and state energy offices in locations with significant outreach efforts, including CEC and NYSERDA. To evaluate the extent of compliance with agency rules and guidance for displaying the EnergyGuide label on products, we visited five major metropolitan areas selected to increase geographic diversity and minimize travel costs. In these 5 metropolitan areas we conducted site visits of 30 retail stores, including national, regional, and local retailers of major appliances or consumer electronics. Within these stores, we inspected all major appliances available for sale in five categories of major household products required to carry the EnergyGuide label: refrigerators, freezers, clothes washers, dishwashers, and water heaters. Our inspections resulted in a nongeneralizable sample of 3,987 major household appliances

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on display for sale in showrooms.[16] We determined whether labels for different products were difficult to use based on details about their placement and condition including whether labels were difficult to read because they were crumpled or folded, damaged, placed next to labels with differing data, or obscured by bins, shelves, racks or advertising, or other documents; placed upside down or backward inside appliances; or pasted to inside walls or surfaces that were difficult to access (such as clothes washer drums or the back or lower interior walls of dishwashers or refrigerators). Our results were generally similar for a variety of different metropolitan areas. In addition, to evaluate compliance with EnergyGuide display rules for products sold electronically on the Web, we inspected a nongeneralizable sample of 3,595 major household appliances for sale in 5 product categories (refrigerators, freezers, clothes washers, dishwashers, and water heaters) on the Web sites of 4 major retailers of household appliances and consumer electronics. To evaluate the extent of compliance with agency rules and guidance for displaying the Energy Star label, we examined a nongeneralizable sample of 220 Energy Star products during our site visits,[17] such as major household appliances and consumer electronics. To determine the misuse of the Energy Star label, we compared the sample of products sold to Energy Star’s 2007 list of qualified products (last updated April 2007). To determine how federal agencies measure the effectiveness and cost of the EnergyGuide and Energy Star programs, GAO reviewed legislative and regulatory requirements for measuring program effectiveness in the Standards for Internal Controls in the Federal Government[18] and EPCA. We reviewed DOE, EPA, and FTC program documentation, annual reports, and performance reports to better understand how these federal agencies measure the effectiveness of these programs. In addition, we interviewed federal officials and staff at DOE, EPA, and FTC about efforts they have taken to measure the performance of the Energy Star and EnergyGuide programs, including efforts to measure cost and effectiveness. We interviewed representatives of industry and trade associations, including AHAM and CEA, as well as representatives from major manufacturers and retailers of appliances and consumer electronics and experts to better understand their perspective on the effectiveness of federal efforts. We interviewed energy efficiency experts identified on the basis of referral by key agency officials, staff, and other experts, including experts at national laboratories; efficiency advocates, including CEE and ASE; consumer advocates, including Consumers Union; and NASEO and state energy offices in locations with significant outreach efforts, including CEC and NYSERDA. We conducted our work from November 2006 through September 2007 according to generally accepted government auditing standards.

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APPENDIX III: COMMENTS FROM THE DEPARTMENT OF ENERGY

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APPENDIX IV: COMMENTS FROM THE ENVIRONMENTAL PROTECTION AGENCY

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APPENDIX V: COMMENTS FROM THE FEDERAL TRADE COMMISSION

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The following are GAO’s specific comments on the Federal Trade Commission’s (FTC) letter dated September 10, 2007.

GAO COMMENTS 1. Although placement of information on the Web site may be helpful, it is not a sufficient step on its own to ensure that consumers have access to energy efficiency information in retail stores and on retail Web sites where consumers purchase equipment covered by the EnergyGuide. Neither the law nor the program’s rules allow manufacturers and retailers to substitute placement of energy data on FTC’s Web site for placement of labels on equipment or on retailer Web sites. In addition, even if such alternative placement was allowed, it is not clear how most consumers would know to go to FTC’s Web site when shopping for covered equipment. We

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United States Government Accountability Office continue to believe that FTC should inspect retail stores to ensure that EnergyGuide labels are available to consumers. 2. Although FTC has conducted a survey of consumers as part of its recent rulemaking, we do not believe that the consumer survey demonstrates the EnergyGuide is available to consumers. FTC stated that 85 percent of consumers answered that they recalled seeing a label with energy characteristics and of those respondents, 59 percent found it useful and FTC presented this evidence that EnergyGuide labels are available. We disagree that the FTC survey is convincing in demonstrating this point. In contrast to our study, which was based on direct inspection of many appliances in multiple locations, the FTC survey relied on consumers to accurately recall—and to accurately report—whether or not they saw a label on an appliance for as long as two years prior to the date of the survey. We did not attempt to assess the reliability of FTC’s survey; however, other results from the FTC survey raise questions about the accuracy of some respondents’ memories and the usefulness of the survey as a tool to reliably assess the availability of EnergyGuide labels. For example, 41 percent of the respondents who reported seeing a label could not recall that the label was yellow with black letters, which raises doubts about the accuracy of some respondents’ memories and the usefulness of the survey to support FTC’s position.[19] Given the limitations with FTC’s survey, we agree with FTC’s statement that the availability of labels in showrooms warrants further attention. As such, we continue to believe that FTC should monitor the availability of the EnergyGuide label and, within existing authority, enforce compliance through periodic inspections of retail showrooms and Web sites. 3. Regarding the effectiveness of the EnergyGuide program, FTC states that it routinely measures the costs of the EnergyGuide program as part of its obligations under the Paperwork Reduction Act, and qualitatively measured the program’s effectiveness during its February 2007 rulemaking. During the course of our audit work, FTC staff was unable to provide to us information describing the costs and effectiveness of the program in recent years and expressed a variety of concerns about doing so. The Paperwork Reduction Act costs FTC now cites, but still has not provided to GAO in sufficient detail for us to review them, may or may not fully cover the costs of administering the program. Also, we disagree with FTC’s statement that FTC measured effectiveness in its consumer survey and that measuring energy savings would be “highly speculative.” As noted in our response to comment 2, we have concerns about FTC’s reliance on its 2007 consumer study and comments it took during its recent rulemaking to measure the effectiveness of the EnergyGuide program, and believe it would be better to develop an estimate of the program’s actual energy savings. We recognize that measuring program results and effectiveness generally involves some estimation; Standards for Internal Control in the Federal Government point out that internal controls only need to provide reasonable, not absolute, assurance that goals and objectives are being met.[20] Moreover, the 2006 survey is not an adequate measure of effectiveness because it is not done regularly. In this regard, we continue to believe that FTC should regularly report the costs and accomplishments of the program, and it appears, as DOE noted in its comments, that DOE plans to meet with FTC to help it do so.

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4. As noted in our chapter, we believe FTC has a shared responsibility, with DOE, for adding new products to the EnergyGuide program. As suggested in our recommendations, and noted in DOE’s comments, we believe that FTC should work with DOE to collaboratively evaluate and determine whether additional products should be included in the EnergyGuide program. We continue to believe that FTC should work with DOE to add new products to the EnergyGuide program to keep the program relevant with changes in consumer purchasing patterns. 5. While FTC is not required to verify energy consumption estimates, the Energy Policy and Conservation Act (EPCA) clearly contemplated that such testing may be desirable or required. In this regard, the law specifically provides FTC with the sole legal power to require manufacturers, at their expense, to provide FTC with appliances for testing and verification.[21] We recognize that such testing could be difficult given FTC’s current lack of expertise to evaluate appliance energy data. However, FTC could augment its own expertise with that of others, such as DOE, the National Institutes of Science and Technology, and others FTC identified in its comments. As such, we believe that this presents another opportunity for FTC and DOE to collaborate for the benefit of consumers. Therefore, we continue to believe that our characterization is appropriate. 6. During the course of our audit, FTC staff told us that they collected complaints regarding the EnergyGuide program. However, when we asked to examine these complaints, FTC did not provide us either with records of these complaints or information on how the issues were resolved, nor evidence that these issues were resolved. FTC also informed us that individual staff members received some complaints that they did not track, and that these complaints were resolved informally. We continue to believe that FTC should use a routine, systematic method of tracking complaints that it receives from manufacturers and others and the manner in which the issues raised in these complaints are resolved in order to improve effectiveness; however, based on FTC’s comments, we clarified the language of our recommendation to better reflect the need for systematic tracking of complaints, the issues raised in these complaints, and their resolution. 7. We did not intend for our chapter to imply that this issue was solely the responsibility of FTC. Rather, because it could become more important in the future, we believed it was important to raise this issue to FTC, DOE, EPA, and the Congress. As DOE notes in its comments, DOE is considering revisions to its testing procedures to limit manufacturers’ circumvention of DOE test procedures. As DOE completes these revisions, FTC enforcement will be needed because EPCA requires FTC to enforce the accuracy of EnergyGuide labels.[22] In response to this comment, we clarified the language in our chapter to better reflect our intent.

APPENDIX II: SCOPE AND METHODOLOGY To determine the extent to which EnergyGuide and Energy Star programs for household products have changed over time, we reviewed authorizing legislation1 and regulations, including the Federal Trade Commission’s (FTC) Appliance Labeling Rule2 and other

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program materials documenting processes, guidance, and actions that agencies have taken to implement these programs. We also interviewed key federal agency officials and staff at the Department of Energy (DOE), Environmental Protection Agency (EPA) and FTC. In addition, we interviewed representatives of industry and trade associations, including the Association of Home Appliance Manufacturers (AHAM) and the Consumer Electronics Association (CEA); major manufacturers of household products and major retailers of household products and consumer electronics; energy efficiency experts identified on the basis of referral by key agency officials, staff, and other experts, including experts at a national laboratory; efficiency advocates, including the Consortium for Energy Efficiency (CEE) and the Alliance to Save Energy (ASE); consumer advocates, including Consumers Union; and the National Association of State Energy Officials (NASEO) and state energy offices in locations with significant outreach efforts, including the California Energy Commission (CEC) and the New York State Energy Research and Development Authority (NYSERDA). Further, we performed quantitative analysis of the Energy Information Administration’s (EIA) Annual Energy Outlook 2007 of residential energy consumption projections to evaluate the share of total household energy consumption not covered by the EnergyGuide over time. EIA’s consumption projections are not statements of what will happen but of what might happen, given the assumptions and methodologies used by EIA. As such, EIA’s projected data reflect known technological and demographic trends and current laws and regulations, and generally do not reflect potential impacts of pending or proposed legislation, regulations, and standards, or of unknown technologies. The projected data presented in this chapter reflect projected energy consumption for the scenario EIA considers to be the most likely; other scenarios reflected similar results. In the past, EIA projections of energy consumption have been relatively close to realized outcomes; however, it cannot be predicted how the underlying factors of EIA’s model will change in relation to one another or other currently unknown factors. We assessed the reliability of EIA projected data by performing manual testing of the data, reviewing related documentation, and interviewing Census officials regarding the uses of the data and the data’s internal controls. We found the data to be sufficiently reliable for the purpose of our analysis. To determine how federal agencies verify the accuracy of energy consumption estimates in the EnergyGuide and Energy Star programs, we reviewed legislative and regulatory requirements for developing energy consumption estimates and agency procedures including DOE’s test procedure for measuring energy consumption. We identified federal agencies’ efforts to verify energy consumption estimates by reviewing agency documentation3 and interviewing key federal agency officials and staff at DOE, EPA, and FTC. We also interviewed major manufacturers of household products about their role in providing estimates and their efforts to verify competitors’ estimates of energy consumption. We identified efforts taken by other agencies and organizations to test appliances for energy consumption by interviewing individuals identified on the basis of referral by key agency officials and experts, including experts at a national laboratory, Consumers Union, CEC, and NYSERDA. Finally, we evaluated the extent to which circumvention of rules for developing energy consumption estimates has been detected in the United States and abroad by interviewing experts and reviewing the literature. To identify the actions DOE, EPA, and FTC take to ensure the EnergyGuide label is available to consumers and the Energy Star label is not misused, we reviewed legislative and regulatory requirements. We also reviewed program documentation on enforcement activities

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and interviewed key FTC staff about efforts taken to enforce compliance with the EnergyGuide program rules as well as DOE and EPA officials about efforts taken to ensure that the Energy Star label is not misused. We also examined the August 2007 revision of the Appliance Labeling Rule. In addition, we interviewed representatives of industry and trade associations, including AHAM and CEA, as well as major manufacturers of household products and major retailers of household products and consumer electronics. We interviewed energy efficiency experts identified on the basis of referral by key agency officials, staff, and other experts, including experts at a national laboratory; efficiency advocates, including CEE and ASE; consumer advocates, including Consumers Union; and NASEO and state energy offices in locations with significant outreach efforts, including CEC and NYSERDA. To evaluate the extent of compliance with agency rules and guidance for displaying the EnergyGuide label on products, we visited five major metropolitan areas selected to increase geographic diversity and minimize travel costs. In these 5 metropolitan areas we conducted site visits of 30 retail stores, including national, regional, and local retailers of major appliances or consumer electronics. Within these stores, we inspected all major appliances available for sale in five categories of major household products required to carry the EnergyGuide label: refrigerators, freezers, clothes washers, dishwashers, and water heaters. Our inspections resulted in a nongeneralizable sample of 3,987 major household appliances on display for sale in showrooms.4 We determined whether labels for different products were difficult to use based on details about their placement and condition including whether labels were difficult to read because they were crumpled or folded, damaged, placed next to labels with differing data, or obscured by bins, shelves, racks or advertising, or other documents; placed upside down or backward inside appliances; or pasted to inside walls or surfaces that were difficult to access (such as clothes washer drums or the back or lower interior walls of dishwashers or refrigerators). Our results were generally similar for a variety of different metropolitan areas. In addition, to evaluate compliance with EnergyGuide display rules for products sold electronically on the Web, we inspected a nongeneralizable sample of 3,595 major household appliances for sale in 5 product categories (refrigerators, freezers, clothes washers, dishwashers, and water heaters) on the Web sites of 4 major retailers of household appliances and consumer electronics. To evaluate the extent of compliance with agency rules and guidance for displaying the Energy Star label, we examined a nongeneralizable sample of 220 Energy Star products during our site visits,5 such as major household appliances and consumer electronics. To determine the misuse of the Energy Star label, we compared the sample of products sold to Energy Star’s 2007 list of qualified products (last updated April 2007). To determine how federal agencies measure the effectiveness and cost of the EnergyGuide and Energy Star programs, GAO reviewed legislative and regulatory requirements for measuring program effectiveness in the Standards for Internal Controls in the Federal Government6 and EPCA. We reviewed DOE, EPA, and FTC program documentation, annual reports, and performance reports to better understand how these federal agencies measure the effectiveness of these programs. In addition, we interviewed federal officials and staff at DOE, EPA, and FTC about efforts they have taken to measure the performance of the Energy Star and EnergyGuide programs, including efforts to measure cost and effectiveness. We interviewed representatives of industry and trade associations, including AHAM and CEA, as well as representatives from major manufacturers and retailers of appliances and consumer electronics and experts to better understand their perspective on

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the effectiveness of federal efforts. We interviewed energy efficiency experts identified on the basis of referral by key agency officials, staff, and other experts, including experts at national laboratories; efficiency advocates, including CEE and ASE; consumer advocates, including Consumers Union; and NASEO and state energy offices in locations with significant outreach efforts, including CEC and NYSERDA. We conducted our work from November 2006 through September 2007 according to generally accepted government auditing standards.

REFERENCES [1] [2]

[3]

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[4] [5] [6]

[7] [8] [9]

Pub. L. No. 94-163 (1975). EPCA currently provides for 16 product categories, but allows FTC the discretion not to include the categories if including them would not (1) assist consumers, (2) be technically feasible, or (3) use a DOE test procedure. The EnergyGuide program currently includes 11 product categories: furnaces, room air conditioners, central air conditioners, heat pumps, clothes washers, dishwashers, refrigerators, freezers, light bulbs and fluorescent ballasts, household water heaters, and pool heaters. In the Energy Policy Act of 2005 (Pub. L. No. 109-58 § 137), Congress amended EPCA to require FTC to initiate a rulemaking to consider (1) the effectiveness of the EnergyGuide program and (2) changes to the label’s format. FTC conducted a study that primarily focused on alternative EnergyGuide label designs, revised the format of the label, and finalized its revisions to the program’s implementing regulation on August 29, 2007 (16 C.F.R. § 305). Pub. L. No. 101-549 (1990). Pub. L. No. 102-486 (1992). For the Energy Star program, we examined the 26 household product categories out of about 50 categories of commercial and household Energy Star products. Household products include clothes washers, dishwashers, refrigerators and freezers, dehumidifiers, room air cleaners, air source heat pumps, boilers, ventilating fans, ceiling fans, room air conditioners, central air conditioners, furnaces, geothermal heat pumps, programmable thermostats, compact fluorescent light bulbs, residential light fixtures, televisions, digital video disc (DVD) players, video cassette recorders (VCRs), television combination units, cordless phones, external power adapters, home audio products, computers, monitors, and printers. Our review included neither commercial Energy Star products, such as traffic lights, exit signs, copiers, and electrical transformers, nor Energy Star products that do not directly consume energy, such as insulation, windows, and doors. GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-0021.3. 1 (Washington, D.C.: November 1999). The briefing slides and draft report were updated to reflect the final amendments to the Appliance Labeling Rule (16 C.F.R. § 305) that FTC issued in August 2007. Specifically, we reviewed FTC’s Appliance Labeling Rule and DOE’s regulations for energy test procedures (10 C.F.R. § 430 Subpart B).

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[10] Some televisions may use an amount of electricity comparable to refrigerators, one of the most energy-intensive product categories. [11] The EPA Inspector General recently described similar challenges in a report reviewing EPA’s implementation of the Energy Star program. The report provided specific recommendations for strengthening the management controls that protect the integrity of the label for the Energy Star areas managed by EPA. See Environmental Protection Agency, Office of Inspector General, Energy Star Program Can Strengthen Controls Protecting the Integrity of the Label (Washington, D.C., Aug. 1, 2007). [12] EPA reported that in 2006, the entire Energy Star program, including products in the commercial, industrial, and residential sectors, saved consumers a total of about $14 billion in energy costs in 2006 and cost about $60 million. Looking only at products commonly used in households, such as appliances, computers, and consumer electronics, EPA and DOE officials estimate program savings of about $7 billion for 2006 with program costs of about $25 million. [13] Energy Policy Conservation Act (EPCA), Pub. L. No. 94-163 (1975); Energy Policy Act of 2005, Pub. L. No. 109-58 (2005). [14] 16 C.F.R. § 305. [15] We also reviewed a recently issued report by the EPA Inspector General reviewing EPA’s implementation of the Energy Star program. See Environmental Protection Agency, Energy Star Program Can Strengthen Controls Protecting the Integrity of the Label (Washington, D.C., Aug. 2, 2007). [16] The results of the nongeneralizable sample are not intended to statistically estimate the number of labeled products in compliance for all products across the United States. [17] In some cases, we inspected products bearing both the EnergyGuide and the Energy Star labels. [18] GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-0021.3.1 (Washington, D.C.: November 1999). [19] Harris Interactive, FTC Energy Label Research Study, a special report prepared for the Federal Trade Commission, January 2007, p. 7. http://www.ftc.gov/os/ 2007/01/ R511994Energy LabelingEffectivenessFRNConsResBkgrdInfo.pdf [20] GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-0021.3.1 (Washington, D.C.: November 1999), p.6. [21] Pub. L. No. 94-163 § 326(b)(3) [22] Pub. L. No. 94-163 § 333(a)

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Chapter 3

ENERGY EFFICIENCY: LONG-STANDING PROBLEMS WITH DOE’S PROGRAM FOR SETTING EFFICIENCY STANDARDS CONTINUE TO RESULT IN FORGONE ENERGY SAVINGS *

United States Government Accountability Office

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WHAT GAO FOUND DOE has missed all 34 congressional deadlines for setting energy efficiency standards for the 20 product categories with statutory deadlines that have passed. DOE’s delays ranged from less than a year to 15 years. Rulemakings have been completed for only (1) refrigerators, refrigerator-freezers, and freezers; (2) small furnaces; and (3) clothes washers. DOE has yet to finish 17 categories of such consumer products as kitchen ranges and ovens, dishwashers, and water heaters, and such industrial equipment as distribution transformers. Lawrence Berkeley National Laboratory estimates that delays in setting standards for the four consumer product categories that consume the most energy––refrigerators and freezers, central air conditioners and heat pumps, water heaters, and clothes washers––will cost at least $28 billion in forgone energy savings by 2030. DOE’s January 2006 report to Congress attributes delays to several causes, including an overly ambitious statutory rulemaking schedule and a lengthy internal review process. In interviews, however, DOE officials could not agree on the causes of delays. GAO’s panel of widely recognized, knowledgeable stakeholders said, among other things, that the General Counsel review process was too lengthy and that DOE did not allot sufficient resources or make the standards a priority. However, GAO could not more conclusively determine the root causes of delay because DOE lacks the program management data needed to identify bottlenecks in the rulemaking process. In January 2006, DOE presented to Congress its plan to bring the standards up to date by 2011. It is unclear whether this plan will effectively clear DOE’s backlog because DOE does *

This is an edited, excerpted and augmented edition of a United States Government Accountability Office publication, Report GAO-07-42, dated January 2007.

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not have the necessary program management data to be certain the plan addresses the root causes. The plan also lacks critical elements of an effective project management plan, such as a way to ensure management accountability for meeting the deadlines. Finally, the plan calls for a sixfold increase in workload with only a small increase in resources. DOE plans to manage the workload through improved productivity.

Source: GAO analysis of DOE data. Timeliness of DOE Rulemakings That Have Come Due.

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WHY GAO DID THIS STUDY The Department of Energy (DOE) sets energy efficiency standards through the rulemaking process for certain consumer product categories, such as kitchen ranges, and industrial equipment, such as distribution transformers. Congress reported in 2005 that DOE was late in setting standards and required DOE to report every 6 months on the status of the backlog. GAO examined (1) the extent to which DOE has met its obligations to issue rules on minimum energy efficiency standards for consumer products and industrial equipment and (2) whether DOE’s plan for clearing the backlog will be effective or can be improved. Among other things, GAO convened an expert panel on energy efficiency standards to identify causes and effects of delays and assess DOE’s plans.

WHAT GAO RECOMMENDS GAO recommends that DOE adopt elements of effective project management in its standards rulemaking, such as using a more transparent process and allocating adequate resources within its appropriation. In commenting on this chapter, DOE did not respond to the recommendations but said it was incorrect to single out any official or office for the delays and that the chapter did not reflect many of its standards-setting activities since EPAct 2005. GAO reported several causes of delays; activities since EPAct 2005 were outside this chapter’s scope.

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ABBREVIATIONS ASHRAE American Society of Heating, Refrigerating and Air-Conditioning Engineers Btu British thermal unit CABO Council of American Building Officials DOE Department of Energy DOT Department of Transportation EPAct 2005 Energy Policy Act of 2005 EPCA Energy Policy and Conservation Act ICC International Code Council IECC International Energy Conservation Code LBNL Lawrence Berkeley National Laboratory MEC Model Energy Code PMF Presidential Management Fellows PNNL Pacific Northwest National Laboratory January 31, 2007 The Honorable John D. Dingell Chairman Committee on Energy and Commerce House of Representatives

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The Honorable Rick Boucher Chairman Subcommittee on Energy and Air Quality Committee on Energy and Commerce House of Representatives The Honorable Edward J. Markey House of Representatives Recent energy cost increases and concerns about global warming are leading to a new national focus on reducing U.S. energy consumption. Household and commercial products that are regulated by the U.S. Department of Energy (DOE) will account for about 30 percent of estimated total U.S. energy consumed in 2006, according to DOE’s Lawrence Berkeley National Laboratory. Increasing the energy efficiency of these kinds of products could produce significant energy savings. Not surprisingly, therefore, Congress has long been interested in improving energy efficiency. In 1975, under the Energy Policy and Conservation Act (EPCA), Congress required DOE to set target minimum energy efficiency standards for manufacturers of specified categories of consumer products such as refrigerators, dishwashers, furnaces, and hot water heaters. Congress has amended the statute to include additional consumer product categories such as fluorescent lamps and plumbing products, as well as industrial equipment categories such as steam boilers and electric motors. Minimum efficiency standards for consumer product and industrial equipment categories are designed to eliminate the least efficient products from the market.[1]

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EPCA, as amended, also reflects manufacturers’ and states’ interest in having uniform federal standards for energy-efficient products, rather than a patchwork of state standards. It prohibits states and localities from setting more stringent standards than the federal standards for covered products unless the states obtain waivers from DOE. When the act was passed, several states were setting their own energy efficiency standards, and stakeholders, including states and manufacturers, generally believed that uniform federal standards would result in lower costs for manufacturing and, hence, lower prices for consumers, as well as saving energy overall. Under EPCA amendments, Congress mandated deadlines for DOE to issue rules that set minimum energy efficiency standards for most consumer product categories. Congress also made manufacturers’ compliance with the standards mandatory. The statute also requires DOE to set and revise standards through the federal rulemaking process. This process calls for analyzing the technical and economic issues associated with setting energy efficiency standards for each category, proposing a standard through public notification, soliciting comments on the standard, revising the rule, and issuing the final rule. DOE program staff in Washington develop these rules, using analysis by experts—such as staff at Lawrence Berkeley National Laboratory (LBNL) and other contractors––on the technical and economic aspects. The rules undergo legal and policy reviews within the department before they are issued. Most of the categories with deadlines require at least two rules—either to set an initial standard and later update it or to update a congressionally set standard and then update it again about 5 years after the first deadline. For categories without deadlines, DOE must first review revisions that nongovernmental standard-setting entities make to their model standards and, generally, issue a rule announcing whether it will adopt these revised model standards or reject them and issue its own standards. In 1993, we reported that while DOE had issued rules for some of the product categories with passed deadlines, these had always been issued late, and the others had not been issued yet. We cited inadequate resources as a major reason for delays.[2] Congressional action in 2005 reflected continuing concerns about DOE’s ability to issue rules for energy-efficient consumer products and industrial equipment. The Energy Policy Act of 2005 (EPAct 2005) required DOE to report to Congress by February 8, 2006, and again every 6 months following the submission of that report, on its plans to clear its backlog of standards that need to be set or considered for revision. In its first report, submitted in January 2006,[3] DOE reported a backlog of required rulemakings for many consumer product and industrial equipment categories but made a commitment, from the Secretary on down, to take a number of steps to clear the backlog by 2011.[4] Twenty of these consumer product and industrial equipment categories have statutory deadlines that have passed and involve 34 different product rules.[5] The requirement for reports to Congress every 6 months highlights the importance Congress places on setting energy efficiency standards for specific consumer products and industrial equipment. The missed deadlines have meant missed opportunities to reduce (1) consumers’ energy costs, (2) the need for new power facilities, and (3) the level of polluting emissions such as carbon dioxide, among other things. While some consumers may choose to buy products that are more efficient without waiting for federal standards, others may not do so for a number of reasons––because the more efficient products may cost more at the time of purchase, for example. If, however, all models in a category have to meet certain minimum energy efficiency standards, then the potential for savings over the life of the product, due to

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lower energy bills, can be significant. For example, by 2030, for the minimum energy efficiency standards for consumer products that DOE has set thus far, DOE projects that consumers will save nearly $125 billion. Enough energy would be saved to operate all U.S. homes for over 2 years, based on 2006 estimated energy consumption. As requested, this chapter examines (1) the extent to which DOE has met its statutory obligations to issue rules on minimum energy efficiency standards for consumer products and industrial equipment and (2) whether DOE’s plans are likely to clear the backlog of required rulemakings and whether these plans could be improved. In addition, you asked us to assess whether DOE has met statutory deadlines for building code determinations (see app. I). In future work, GAO plans to evaluate federal agencies’ efforts to provide household consumers with information about energy savings opportunities for purchases of appliances, lighting, and other energy consuming products. We reviewed statutes and regulations regarding the requirements and deadlines for minimum energy efficiency standards for consumer products and industrial equipment. We interviewed relevant officials from, and analyzed documentation provided by, DOE, a DOE contractor, energy organizations, and nongovernmental standard-setting entities; an expert on regulatory efficiency; and government officials from Canada and California––governments that are known for their exemplary standards- setting programs.[6] In addition, we convened a Web-based panel of 33 energy efficiency standards stakeholders from federal and state governments, industry, nonprofit organizations, and utilities who are both widely recognized as knowledgeable about key aspects of energy efficiency standards and are involved with DOE’s standards rulemaking process. We obtained panel members’ views using a modified, Web-based version of the Delphi method, a systematic process for obtaining individuals’ views and obtaining group members’ consensus, if possible, on a problem of interest. A more detailed description of our objectives, scope, and method is presented in appendix II. We did not examine the merits of the standards DOE has set. Although DOE is required to issue rules regarding standards for plumbing products, we excluded them from this chapter because they primarily involve conserving water, rather than energy. In addition, we did not consider deadlines for the purposes of this chapter set in EPAct 2005; nor did we examine DOE’s activities undertaken since EPAct 2005 that did not result in a completed standard. We conducted our review from June 2005 through January 2007 in accordance with generally accepted government auditing standards.

RESULTS IN BRIEF DOE has missed all 34 of the deadlines for rulemaking that have come due for the 20 consumer products and industrial equipment categories with deadlines that have passed. In addition, it has not revised standards for one of the six industrial equipment categories that have no deadlines but for which DOE is obligated to issue new rules. Of the 34 rules with missed deadlines, 11 were issued late, and the other 23 have not been issued at all. Delays in meeting deadlines range from about 2 months to 15 years. Overall, all required rulemakings have been set for only three product categories with deadlines: (1) refrigerators, refrigeratorfreezers, and freezers; (2) small furnaces; and (3) clothes washers. DOE has yet to set all required rulemakings for 17 additional categories such as—for consumer products—kitchen

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ranges and ovens, dishwashers, clothes dryers, hot water heaters, and—for industrial equipment––various electric motors and electric distribution transformers, which reduce the voltage of an electric utility’s power distribution line to the lower voltages suitable for most equipment, lighting, and appliances. In addition, standards are up to date for five of the six industrial equipment categories that have no deadlines but which must have standards set: (1) warm air furnaces, (2) packaged boilers, (3) storage water heaters, (4) instantaneous water heaters, and (5) unfired water storage tanks (that store water and have an external source for heating it). The sixth category—a particular type of large air conditioner and heat pump—has not had standards set. Our panel members cited increased energy consumption as one of the most significant effects of the delays. In fact, according to LBNL, the delays for the four consumer product categories with the greatest energy savings potential will cost the nation an estimated $28 billion in forgone savings by 2030. Our panel also pointed to other potential effects of delays, such as states attempting to set their own efficiency standards and manufacturers’ and utilities’ difficulties in making business plans. Standards that differ from state to state would be likely to cause higher manufacturer costs than a single federal standard and, hence, higher costs for consumers. It is unclear whether DOE’s latest plan for clearing its backlog of rulemakings will effectively bring its minimum energy efficiency standards up to date, primarily because DOE cannot be certain it knows the root causes of the delays, and its catch-up plan lacks critical elements of an effective project management plan. Specifically:

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•

•

Root causes are uncertain. Neither DOE nor our panel could agree on, and we could not definitively determine, the root causes of the delays. DOE has not developed the program management data it needs to identify bottlenecks in the rulemaking process and develop solutions. As a result, we could not determine if the corrective actions DOE has proposed will alleviate delays. In developing the catch-up plan, the managers relied primarily on anecdotal information from program staff to determine the causes of delays. In the absence of management information, such as the length of each stage of DOE’s rulemaking process, we were not able to determine which of these causes or combinations of causes account for the delays. Some of our panelists raised concerns that DOE may not be addressing what they believe are the most relevant reasons for delays; for example, DOE may not have allocated sufficient funding or assigned adequate technical staff. Unless the causes of the delays are known, it is difficult to know whether problems have been addressed. But, most of the panelists rated the components of DOE’s plan highly and expect that it will help DOE meet the deadlines of its catch-up schedule if these actions are implemented. The plan lacks critical project management elements. According to leading project management practices, effective project plans have two key components that are lacking in DOE’s plan. First, plans should hold officials and staff accountable for meeting interim and final deadlines. If the officials do not meet these deadlines, they should provide legitimate reasons for the delays. Second, the plan should include provisions for adequate resources. Instead, DOE’s plan increases the workload sixfold over that in recent years without increasing proportionately the resources it will devote to the program. DOE officials told us they plan to rely on increased productivity, with only a marginal increase in resources, to bring the standards up to

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date. Furthermore, DOE’s plan does not include a means of ensuring that staff and reviewers are accountable for meeting deadlines. To help ensure that DOE reduces or eliminates the backlog, we are making recommendations to the Secretary of Energy that DOE revise its catch-up plan to incorporate leading management practices. In commenting on a draft of this chapter, DOE did not provide views on our recommendations. DOE said it was incorrect to single out any official or office for the delays and that the chapter did not reflect many of its standards-setting activities undertaken since EPAct 2005. We disagree with DOE’s characterization of our analysis. We reported several causes of delays in the standards-setting process; also, the activities DOE has taken since EPAct 2005 that did not result in completed standards are outside of the scope of this chapter.

BACKGROUND Under EPCA, as amended, covered product and equipment categories may need one or two rulemakings for the following reasons: •

•

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•

•

Most often, if Congress established a standard in the law, DOE must publish a rule revising the standard or explaining why a revision is not justified. Generally, such statutes require two rulemakings: an initial revision and then a second revision, usually 5 years later. This type of rulemaking is associated with most categories. For several consumer products for which Congress did not set a standard in law, DOE must issue two rules—one rule to create a standard and a later rule to update the standard. For several industrial equipment categories for which Congress established a standard in law, DOE must review amendments to model standards set by a specified nongovernmental standard-setting entity. Based on DOE’s review, it must either publish a rule updating the statutory standards to reflect the amended model standards, or publish a rule demonstrating that a more stringent standard is justified. The statute specifically requires DOE to consider the standards set by the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE). For three other industrial equipment categories, DOE must first publish a determination of whether a standard is needed. If DOE determines the need for a standard, it must then publish a rule setting such a standard 18 months after publishing the determination. However, DOE does not have a deadline for making a determination.

Overall, DOE is required to determine that revisions to standards achieve the maximum improvement in energy efficiency that is “technologically feasible and economically justified.” In determining whether a standard is economically justified, DOE must consider the economic impacts of the revision on manufacturers and consumers, the savings in operating costs throughout the life of the product, the total projected amount of energy savings likely to result from the standard, and whether the standard would result in a product

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that is less useful or does not perform as well. Table 1 shows the number of deadlines and types of actions required for consumer product and industrial equipment categories with deadlines that have passed. In addition, DOE is obligated to issue rules adopting revised standards for another six industrial equipment categories: packaged terminal air conditioners and packaged terminal heat pumps; warm air furnaces; packaged boilers; storage water heaters; instantaneous water heaters; unfired water storage tanks. DOE has no mandated deadlines for issuing these rules. Table 1. Actions DOE Is Required to Take for Consumer Product and Industrial Equipment Categories with Rulemaking Deadlines

1 2 3 4 5 6 7 8 9 10 11 12

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13 14 15 16

17 18

19 20

Action required for consumer product or industrial equipment categories Consumer products Issue a rule revising a standard or explaining why a revision is not justified Clothes washers Refrigerators, refrigerator-freezers, and freezers Small furnaces Central air conditioners and heat pumps Clothes dryers Dishwashers Fluorescent lamp ballasts Room air conditioners Water heaters Direct heating equipment Furnaces General service fluorescent lamps and incandescent reflector lamps Additional general service fluorescent and general service incandescent lamps Kitchen ranges and ovens Mobile home furnaces Pool heaters Subtotal—number of consumer product rules required Industrial equipment Issue a rule revising a standard or explaining why a revision is not justified Electric motors not requiring national certification Electric motors requiring national certification Issue a determination of whether a revision is justified, and, if so, issue a rule setting the standard Distribution transformers Small electric motors Subtotal—number of industrial equipment rules required Total—number of rules required for consumer products and industrial equipment

Number of rulemaking deadlines that have come due

2 2 1 2 2 2 2 2 2 2 1 2 1 2 1 2 28

2 2

1 1 6 34

Source: GAO analysis of DOE data. Note: The numbers in the column on the left represent the number of product categories.

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DOE HAS MISSED ALL RULEMAKING DEADLINES AT A COST OF BILLIONS IN FORGONE ENERGY SAVINGS DOE has missed all 34 of the rulemaking deadlines that have come due for the 20 product categories with deadlines, completing 11 of these rules late and not yet completing the remaining 23. DOE has also not revised standards for one of the six industrial equipment categories that require updates but have no deadlines. LBNL estimates that delays in setting minimum energy efficiency standards for four categories of consumer products that DOE believes use the most energy will cost the nation at least $28 billion in forgone energy savings by 2030. Our panel members identified two additional significant effects of the delays: states attempting to set their own standards and businesses and utilities having difficulty in making business decisions and planning for the future.

DOE Has Not Met Any of Its Rulemaking Obligations on Time As table 2 shows, none of the 34 rules with passed deadlines was completed on time. For rules that have been completed, delays ranged from less than 1 year to about 10 years; and incomplete rules are as much as 15 years late. Table 2. Timeliness of DOE Rulemakings That Have Come Due

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Status On time Less than 1 year late 1 year to less than 5 years late 5 years to less than 10 years late 10 years to 15 years late Total

Completed rulemakings 0 2 4 5 0 11

Incomplete rulemakings 0 1 2 8 12 23

Source: GAO analysis of DOE data.

Table 3 shows the status of rules completed for consumer product and industrial equipment categories with deadlines that have passed. As the table shows, only three product or equipment categories—clothes washers; refrigerators, refrigerator-freezers, and freezers; and small furnaces—have had all their rules completed. As the table also shows, some categories have had one of two required rules completed, and others have had no rules completed. Appendix III provides additional information on the deadlines for these product and equipment categories. Furthermore, for the six industrial equipment categories that do not have deadlines, DOE has completed rules for five and has begun, but not completed, the rulemaking process for the remaining category, as table 4 shows.

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United States Government Accountability Office Table 3. Status of Efficiency Standards for Consumer Products and Industrial Equipment with Rulemaking Deadlines That Have Passed Consumer product or industrial equipment category

1 2 3 4 5 6 7 8 9 10 11 12 13

14 15 16 17 18

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19 20

Consumer products Clothes washers Refrigerators, refrigerator-freezers, and freezers Small furnacesa Central air conditioners and heat pumps Clothes dryers Dishwashers Fluorescent lamp ballasts Room air conditioners Water heaters Direct heating equipment Furnaces General service fluorescent lamps and incandescent reflector lamps Additional general service fluorescent and general service incandescent lampsa Kitchen ranges and ovens Mobile home furnacesa Pool heaters Industrial equipment Electric motors–not requiring national certification Electric motors–requiring national certification Distribution transformersa Small electric motorsa Total

Number of rulemaking deadlines that have come due

Status and number of completed rules (in parentheses)

2 2

All rules completed (2). All rules completed (2).

1 2

All rules completed (1). First rule completed (1).

2 2 2 2 2 2 1 2

First rule completed (1). First rule completed (1). First rule completed (1). First rule completed (1). First rule completed (1). No rules completed. No rules completed. No rules completed.

1

No rules completed.

2 1 2

No rules completed. No rules completed. No rules completed.

2

No rules completed.

2

No rules completed.

1 1 34

No rules completed. No rules completed. (11)

Source: GAO analysis of DOE data. Note: The numbers in the column on the left represent the number of product categories. aOnly one rulemaking required.

Delays Resulted in Forgone Energy Savings of at Least $28 Billion and Create Problems in Other Areas DOE does not have estimates of the energy savings lost because of delays in completing rules. However, LBNL staff provided us with estimates of delays for the four categories of consumer products that DOE believes use the most energy—refrigerators and freezers, central air conditioners and heat pumps, water heaters, and clothes washers. According to these estimates, the nation would have saved at least $28 billion in energy costs, even after paying higher equipment costs, by 2030 if these standards had been put in place when required—that is, 2.1 quadrillion British thermal units (Btu) of natural gas and 1.4 quadrillion Btus of electricity. Historically, LBNL, under contract to DOE, has performed most of the technical and economic analyses for proposed standards rulemakings. To estimate the cost of delays,

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LBNL staff used the estimates of savings they developed to support proposed standards for the four consumer products. According to our analysis, LBNL took steps to ensure the estimates were reasonably accurate by considering such factors as whether the technologies used for the analysis would have been available at the time of the deadlines for setting standards. The total forgone energy savings is equal to the annual primary energy consumption of approximately 20 million U.S. households. In addition, the delays will also result in 53 million tons of carbon dioxide emissions, an amount equivalent to about 1 percent of total estimated U.S. carbon dioxide emissions in 2004. Our panelists noted that they consider increased energy consumption to be one of the two most significant effects of DOE’s delays in revising efficiency standards. Similarly, delays for one type of industrial equipment, electric distribution transformers, have resulted in significant forgone energy savings. Distribution transformers reduce the voltage of an electric utility’s power distribution line to the lower voltages suitable for most equipment, lighting, and appliances. Nine years ago, DOE determined that standards for distribution transformers were warranted as technologically feasible and economically justified and were likely to result in significant savings. However, DOE did not publish proposed standards for distribution transformers in the Federal Register until August 2006.[7] According to DOE, the energy savings from the proposed distribution transformer standards would eliminate the need for approximately 11 new 400-megawatt power plants by 2038, enough to provide a sufficient flow of electricity to about 3 million homes.[8] These estimates account for only a portion of the forgone savings from the lack of timely rules for consumer products and industrial equipment; however, no estimates of the forgone savings are available for the remaining product and equipment categories. Equally important, because many energy-using products and equipment have long service lives, delays in setting standards lead to years of using the products and equipment that are less energy efficient than they could be, compounding the loss of the energy efficiency. For example, electric distribution transformers have a typical service life of about 30 years. With about 50 million transformers in the United States, each year of delay until a rule setting standard is completed means that more of these transformers will be replaced at the present energy efficiencies, rather than the proposed level, leading to many additional years of forgone savings. Other, nonquantifiable effects have also resulted, or can result, from delays in issuing energy efficiency rules. Our panel members noted the possibility that states would attempt to set their own appliance efficiency standards as the other most significant effect of delays. Indeed, states are dissatisfied with DOE’s delays. In 2005, 15 states and New York City sued DOE for “foot-dragging [that] results in greater —–and avoidable—energy use.” The states cited, among other effects, high energy costs, increased environmental harm, and burdens on the electricity grid from DOE’s delays as justification for their actions. The suit was settled recently, with DOE agreeing to eliminate its backlog by 2011, the same date set in its report to Congress. According to officials from the California Energy Commission, California has begun to press Congress to lift the preemption that prevents the states from readily setting their own standards. While states had expressed dissatisfaction with the pace of rulemaking and before 1987 had petitioned DOE for waivers, the 1987 amendment to EPCA made it considerably more difficult to obtain a waiver, according to DOE officials. Since then, DOE has received only one petition for a waiver. Panel members commented that if states obtain waivers and pass individual standards, the result could be a patchwork of state standards,

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preventing economies of scale in manufacturing and raising costs for both consumers and manufacturers. Panel members also pointed out that delays make business planning difficult for manufacturers and utilities, which could also increase their costs and, therefore, costs to consumers. As one panel member noted, “Product manufacturers don’t know when new standards will take effect in advance, making it difficult to plan product redesigns and thereby increasing cost of compliance.” According to another panelist, “An uncertain future regulatory environment makes it very difficult for appliance and equipment manufacturers to make investment decisions.” For example, a manufacturer may be reluctant to invest large sums in a new technology if the new technology may be made obsolete by new federal efficiency standards or if new standards might not allow the manufacturer to gain a hoped-for competitive advantage via new technology. To minimize such uncertainty and its attendant risks, manufacturers want DOE to make regulatory decisions on time.”

EFFECTIVENESS OF DOE’S CATCH-UP PLAN IS UNCERTAIN DOE has developed a catch-up plan to resolve the backlog of delayed energy efficiency standards. However, since DOE has not completely identified the root causes for the delays and because the plan lacks critical elements of an effective management approach, the likelihood of success is not clear.

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DOE’s Plan Lays out an Approach to Clearing the Backlog, but It Is Unclear whether the Plan Is Addressing Root Causes of Delays According to DOE’s January 2006 report to Congress, the department has identified four causes of delays in its efficiency standards rulemaking: (1) an overly ambitious schedule set in statute; (2) the sequential nature of the rulemaking process; (3) the consequences of the Process Rule, which the report states that DOE adopted in 1996 to address concerns about its analyses and stakeholder involvement; and (4) DOE’s internal document review and clearance process. Specifically: •

•

An ambitious statutory schedule. According to the report, Congress’s rulemaking schedule was “rigorous.” As a result, the program staff were unable to meet the deadlines from the beginning. These delays were exacerbated when Congress increased the number of products that required rulemakings. In 1994, DOE attempted to address the backlog by proposing standards for eight products in one rulemaking. However, according to DOE, this rulemaking effort met with strong opposition from industry, drawing over 5,000 responses during the comment period, and DOE withdrew the proposal. Following this experience, Congress imposed a 1-year moratorium on new or amended standards. The moratorium further exacerbated the backlog, according to DOE. Sequential nature of the rulemaking process. The elements of a rulemaking must occur sequentially, and, according to DOE, “this sequence-dependent nature of the

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•

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analyses makes it vulnerable to unrecoverable delays.” The standards rulemaking process includes many overlapping requirements from EPCA, as amended; Executive Orders; and the Process Rule, which create a complex analytical and procedural challenge, according to the report. The standards rulemaking process typically consists of three stages––an advance notice of proposed rulemaking, a notice of proposed rulemaking, and a final rule––and each of these stages includes internal and external review and comment periods, as well as technical analyses that build on previous analyses. Most of these tasks cannot be done concurrently, so when delays occur, often the time lost cannot be made up because of these rigid requirements. Consequences of the Process Rule. Under DOE’s 1996 “Process Rule,”[9] the potential energy savings, rather than statutory deadlines, determine which standards should be set first. Consequently, DOE reported to Congress, it analyzed the likely impacts of all pending energy efficiency rulemakings and used this analysis to categorize each rulemaking as high-, medium-, or low-priority, depending on energysavings potential. Regardless of deadlines, high-priority rules received the bulk of the resources, medium- priority rules received some resources, and low-priority rules were not addressed at all. The Process Rule also called for increased stakeholder input and expert review, which added time to the rulemaking, according to DOE’s report. Finally, according to DOE’s 2006 report, the Process Rule increased the complexity of the technical analysis required, adding more time. • Internal document review and clearance process. The quality of draft rulemaking documents was inconsistent, according to DOE’s 2006 report, which made the internal review process time consuming. In addition, reviews by the Office of General Counsel, Office of Policy and International Affairs, and other internal reviewers were not always managed effectively, according to the report. Consequently, issues were not identified and resolved early in the process, and draft rules often did not receive the timely reviews needed to approve them for issuance.

While DOE identified these causes for rulemaking delays in its January 2006 report, DOE staff we spoke with did not agree on the causes. Program staff told us General Counsel’s legal reviews were excessively long, while General Counsel officials attributed their lengthy review to the poor quality of documents, which required extensive non-legal editing. DOE lacks program management data that would enable it to identify with specificity where in the agency’s internal review process delays are occurring. In addition, LBNL staff disagreed with the report’s contention that the Process Rule required more time for technical analysis. Rather, they said, the Process Rule’s requirement for more complex analysis and for more systematic stakeholder involvement addressed those parts of the rulemaking process earlier than before but took about the same amount of time. Our panel members, based on their past involvement or familiarity with standards rulemaking, agreed that the internal review process was problematic. Specifically, the most frequently cited cause for delays in developing energy efficiency standards were delays in the General Counsel review process. One panel member stated that the General Counsel review process was “one of the lengthiest and most opaque elements of the standards process.” In addition, about half of our panelists said the low priority historically given to the program, not only by DOE but by the Administration and Congress as well, was a great cause of delay in

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issuing the standards. Finally, panel members identified two additional major causes of delay that DOE did not, namely inadequate budget and insufficient technical staff. While some of these identified causes are beyond DOE’s control, such as the statutory deadlines, DOE reported that it could take actions to clear the backlog by 2011. DOE plans to do the following to ensure that rulemakings are more timely: •

•

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•

•

•

Make the rulemaking process more efficient. DOE plans to stagger the start of rulemakings in order to make the best use of staff time and resources. In the past, DOE staff worked on one rule at a time. Under DOE’s plan, staff will work on several rules simultaneously, which should enable the staff to make better use of their time when drafts are out for review. In addition, DOE plans to combine several products with related technical and policy characteristics—such as water heaters, pool heaters, and direct heating equipment—into a single rulemaking, which should expedite the rulemaking process. Adhere to the deadline for closing public comments. DOE reported that it will only consider comments received before their deadlines in its current analysis. In the past, DOE continued to consider comments after the closing date stated in the Federal Register and responded to those comments with additional analysis, which delayed the issuance of the final rulemaking. Simplify the analysis for each rulemaking. Senior management officials are expected to approve the staff’s analytical approach and scope of effort earlier in the rulemaking process. In the past, rulemaking staff conducted their analysis for a product category without ensuring that senior management approved of their approach. As a result, according to the plan, management often called for a different approach when reviewing a draft analysis, which required significantly more time. In addition, DOE plans to conduct less exhaustive analysis for some rules, rather than conducting the same level of analysis for all rules. If all the stakeholders agree that a product category does not require DOE’s usual complex analysis, which would be the case when the key issues are clearly understood, DOE will perform less extensive analysis. DOE expects this change to shorten rulemaking times. Better ensure the quality of the proposed rulemaking and accountability of all staff and reviewers. DOE plans to take four actions toward this goal: (1) train staff in how to meet all regulatory procedural requirements and provide readily available comprehensive guidance in order to avoid procedural mistakes that lead to delays, (2) contract with a national laboratory to maintain a data management system for tracking rulemaking progress and use the resulting data to identify problems for quicker resolution, (3) match skill levels with tasks so that resources are used most efficiently, and (4) encourage stakeholders to negotiate a proposed standard in return for an expedited rulemaking process. Improve the document review and clearance process. DOE plans to emphasize better document quality so that reviewers can focus their efforts on legal and policy issues rather than on basic editorial issues. In the past, formats, styles, and approaches of documents were not consistent, which slowed down the review process. DOE has issued a style guide and a template for documents to better ensure consistency. In addition, DOE plans to have different reviewers examine the proposed rulemaking concurrently, rather than sequentially, throughout the rulemaking process.

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Adhere to a 36-month timetable for completing a rule. DOE will allocate approximately 16 months for analysis, 6 months for public review and comment, 8 months for its internal review, and 6 months for review by the Office of Management and Budget. In the past, while DOE had a 3-year limit for rulemaking, it virtually never issued rules within that period.

Most panelists rated the components of DOE’s catch-up plan highly and expect that, if followed, it will likely help DOE meet its schedule for completing rules. The panelists particularly favored the parts of DOE’s catch-up plan to reform its internal review process, use an expedited process when stakeholders recommend standards on which they have reached consensus, and stagger rulemakings. They also emphasized the importance of having the Secretary of Energy and the administration provide more management attention and priority to the program. Finally, most agreed that certain aspects of DOE’s current rulemaking process should not be changed. Specifically, DOE should continue to perform complete technical and economic analyses and explain its justification for the standards it selects, include the public and stakeholders throughout the rulemaking process, and ensure that the process and analyses are transparent. Despite these favorable views, some panelists expressed concern that DOE might not have addressed what they consider the most relevant causes of delay. For example, according to one panelist’s observations, “the delays are an internal management problem at DOE, and the department’s internal procedures are a black box. It is hard to know with any assurance what the real problem is and whether the issue is budget or staffing or bureaucratic procedures.” According to another panelist’s review of DOE’s plan, the plan “focused too much on reducing analytical complexity and controlling stakeholder participation––neither of which were major contributors to delays––and too little on internal process improvements, without which delays will continue.” Although many of DOE’s actions appear reasonable, we agree that DOE may not have identified the root causes of its rulemaking delays. Consequently, DOE risks expending resources on the wrong factors or emphasizing minor or irrelevant causes. DOE has not developed the program management data it needs to identify bottlenecks in the rulemaking process. Even though DOE has work logs that compile limited data on some parts of the rulemaking process, such as the amount of time taken for internal reviews, the data are not detailed enough to identify the source of delays. Furthermore, DOE does not have data on the length of all stages of its rulemaking process. Because DOE managers lacked data to determine causes, they said they compiled information about possible causes during discussions with staff. Despite the problems with their data, managers told us that they believe that they have identified the root causes of delay.

DOE’s Plan Lacks Critical Elements of Effective Project Management According to our work on leading performance management practices and the work of a government regulatory process expert, management plans should contain specific strategies to resolve problems and help congressional decision makers understand how the agency plans to improve its performance.[10] Such plans also provide a basis for accountability. While DOE’s plan includes elements intended to make the rulemaking process more efficient, it

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lacks two critical elements to help ensure success of the plan—assurance of accountability and management’s allocation of adequate resources. Specifically: •

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•

Assurance of accountability. While DOE has laid out a schedule for clearing its rulemaking backlog for standards, its past poor performance calls into question whether it is likely to be accountable to the schedule in the catch-up plan. According to an Assistant General Counsel who manages and tracks the regulatory process for the Department of Transportation (DOT), an agency with very extensive and effective electronic regulatory management, a successful rulemaking process holds its management and staff accountable to interim and final deadlines. For example, DOT publishes its deadlines on its Web site, making the agency’s actions to meet the deadlines transparent to all stakeholders. While DOT’s deadlines are target dates only, this transparency puts pressure on each participant to carry out his or her responsibilities on time or to provide legitimate reasons for any delays. DOE publishes a schedule of deadlines for some standard-setting rulemaking, including the interim deadlines, in its Semiannual Regulatory Agenda.[11] However, when DOE misses these deadlines, it generally does not explain why, or how it plans to make up the lost time when it publishes revised deadlines. The catch-up plan does not ensure that the pattern of missing deadlines will be broken. Adequate resources. As far back as 1993 we reported that insufficient resources were a primary cause of DOE’s delays in updating energy efficiency standards. This may still be the case. While the DOE plan calls for a sixfold increase in workload, it does not increase program staffing and contractor budgets in the same proportion. Program managers told us they generally have had 7 to 14 staff working on energy efficiency rules, with 7 on the job as of fiscal year 2006. They plan to add 2 full-time staff and 1 from the Presidential Management Fellows (PMF) program, a nonpermanent position, for an increase to 10 staff in fiscal year 2007.[12] Similarly, from fiscal years 2000 through 2006, DOE’s budget for contractor staff has averaged about $10 million per year. For fiscal year 2007, DOE requested $12 million for contractors, a 20 percent resource increase. DOE expects these limited resource increases to cover a 600 percent increase in workload. In the absence of further increasing resources, DOE said in its January 2006 report it plans to meet the increased workload by improving productivity.

CONCLUSIONS DOE’s program for energy efficiency standards has been plagued by delays for decades. Although many steps in DOE’s most recent January 2006 plan to address these delays appear to be reasonable, DOE does not definitively know whether the plan will address root causes and clear the backlog. Furthermore, DOE’s plan lacks important elements of effective management practices that would help assure success. Consequently, it is unclear whether DOE can carry out the ambitious schedule it has set for itself to update energy efficiency standards. If DOE does not succeed in clearing its backlog, the nation and consumers will continue to forgo the benefits

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of more energy-efficient consumer products and industrial equipment. The loss of such benefits will make the nation depend even more on imported energy. The continuing commitment of DOE’s top management to make standards rulemaking a top organizational priority is essential to DOE’s success in completing all energy efficiency rules.

RECOMMENDATIONS FOR EXECUTIVE ACTION To increase the likelihood that DOE’s plan for updating minimum energy efficiency standards is successfully implemented, we recommend that the Secretary of Energy take the following actions: • •

•

•

Employ the elements of leading management practices, including expediting the efforts DOE has begun to establish a tracking system to gather data that may be used to identify and address causes of delays to more effectively manage the rulemaking process; ensuring that the interim goals and time frames are transparent to all stakeholders, and that all internal stakeholders, including reviewers and program staff, are held accountable to the time frames; and allocating adequate resources within DOE’s appropriation.

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AGENCY COMMENTS AND OUR EVALUATION We provided the Department of Energy with a draft of this chapter for review and comment. Although DOE did not provide views on our recommendations, it expressed concerns in two areas. First, regarding our discussion of the causes of delays in setting standards, DOE stated that it is incorrect to assign blame for delays to any one office, official, decision, or process—and specifically to the Office of the General Counsel. DOE stated that doing so reflects a simplistic and largely incorrect understanding of the program’s complexity. DOE noted that the delays in setting standards have spanned administrations of both parties, several Secretaries of Energy, and various DOE offices and personnel; also, although DOE work logs may indicate that a specific office has a document for a certain period of time, during that time multiple individuals from different offices may have been working together on the document. We disagree with DOE’s characterization of our analysis. In establishing the context for our findings, we pointed out that the energy efficiency standards-setting process was complex and that there were multiple reasons for delays. To provide more definitive information on the root causes of the extensive delays that have been experienced, we sought data from DOE and the opinions of cognizant DOE staff. However, because DOE management could not provide data to conclusively document the reasons for the substantial delays, or the data provided by DOE as contained in internal work logs were inadequate to determine causality, and because representatives of the various DOE offices could not agree on the root causes, we turned to a well-recognized process for identifying causes in complex situations—a Delphi panel. Panel members were carefully, objectively selected individuals who have been closely involved in DOE’s rulemaking process for setting

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standards over an extensive period of time. They most frequently cited delays in the General Counsel review process as cause for delays in developing energy efficiency standards. We believe that our use of this method provided a clearer understanding of the causes of delays than DOE has been able to provide. As we noted earlier, in DOE’s January 2006 report to Congress and in our interviews with representatives of the offices involved in the standardsetting process, those associated with the program generally acknowledged that they could have done more but pointed to others as the cause of the delays and therefore have not fully accepted responsibility for the program’s failures. Second, DOE stated that our chapter did not capture many of the recent standards-setting activities undertaken since enactment of EPAct 2005. We agree that there has been a flurry of standards-related activity, as expressed by DOE in its letter commenting on our chapter, and we have noted this in our chapter. Although we recognize that DOE has taken a number of steps that should move the program forward, it has not yet published any additional final standards for the product and equipment categories included in the scope of our work and our chapter’s findings have not changed. DOE’s letter commenting on our chapter is presented in appendix V.

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APPENDIX I: STATUS OF THE DEPARTMENT OF ENERGY’S MODEL BUILDING CODE DETERMINATIONS States and their subdivisions, such as counties and cities, adopt building codes that establish minimum requirements for energy-efficient design and construction of commercial and residential buildings. The building codes regulate components that affect the amount of energy that a building will use, such as the building envelope, electrical power, and lighting. These codes vary from one state to another and sometimes within a state. They may be mandatory or voluntary codes, either requiring builder compliance or serving as guidelines. States and local jurisdictions may adopt model building codes developed by nonprofit organizations, such as the American Society of Heating, Refrigerating and Air-Conditioning Engineers’ (ASHRAE) Standard 90.1 and the International Code Council’s (ICC) International Energy Conservation Code (IECC). Both ASHRAE and ICC publish codes for commercial and residential buildings. ASHRAE uses a consensus and public hearing process to develop its model building codes. It involves the design community, including architects and lighting and mechanical designers; the code enforcement community, including building code officials and state regulatory agencies; building owners and operators; manufacturers and utility companies; and representatives from the Department of Energy (DOE), energy organizations, and the academic community. ICC uses a different process to develop its model building codes. Under its process, anyone can propose a code, and the IECC code development committee, which includes mostly building code officials, votes on the proposals. According to staff at the Pacific Northwest National Laboratory (PNNL), which monitors state building codes for DOE, although ASHRAE and ICC use different processes to develop their model building codes, the two organizations incorporate each other’s codes into their own when they revise them. As a result, ASHRAE and ICC codes that are revised at about the same time generally have similar energy efficiency provisions.

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The Energy Conservation and Production Act, as amended (the Act), directs DOE to evaluate revisions to these model building codes and publish its determinations of whether the revision would improve energy efficiency. For commercial buildings, defined by DOE to include buildings other than low-rise residential buildings, the Act directs DOE to evaluate ASHRAE’s revisions to its Standard 90.1. Each time ASHRAE revises Standard 90.1, DOE has 12 months to determine whether the revision will improve energy efficiency in commercial buildings and publish a notice of that determination in the Federal Register. For residential buildings, defined by DOE as low-rise residential buildings, the Act directs DOE to evaluate revisions the Council of American Building Officials (CABO) makes to its Model Energy Code (MEC), or any successor to that code. In 1995, the ICC succeeded CABO and, as such, the IECC replaced the MEC. Each time the ICC revises the IECC, DOE has 12 months to determine whether the revision will improve energy efficiency in residential buildings and publish a notice of that determination in the Federal Register. The Act does not specify what type of revision triggers the start of the 12-month period for either commercial or residential determinations; but, according to DOE officials, the 12-month period is triggered by ASHRAE’s and ICC’s publication of revised codes. The Act provides that if the Secretary determines that a revision to ASHRAE’s or ICC’s model building code will improve energy efficiency–– called a positive determination––states “shall” review their building codes. For commercial model building codes, each state has 2 years after DOE publishes a positive determination on a revised ASHRAE model building code to certify to DOE that it has reviewed and updated the provisions of its commercial building code in accordance with the revised code. For residential model building codes, each state also has 2 years after a positive determination for certification, but it must certify to DOE that it has reviewed the provisions of its residential building code and determined whether it is appropriate to update them to meet or exceed the revised code. Subsequent to enactment of these provisions, the Supreme Court ruled that the constitution does not allow Congress to require states to regulate a matter.[13] DOE program managers told us that DOE does not require states to review their codes following a positive determination.[14] Instead, the managers told us, DOE facilitates states’ efforts to adopt revised codes. PNNL officials told us they assist DOE on all aspects of the building code determinations and provide training and technical assistance to state and local officials responsible for building codes. As of August 2006, ASHRAE and ICC have published a combined total of nine revisions to their model building codes for DOE to evaluate. ASHRAE revised Standard 90.1 three times, and CABO revised the MEC twice before it was incorporated into ICC in 1995. The ICC issued its first version of the IECC in 1998 and has since revised it three times. Deadlines for DOE’s determinations have come due on all these revisions, except the 2006 IECC revision, which will be due in January 2007. We were asked to report on (1) whether DOE has met its statutory deadlines for determining if states should adopt revised commercial model building codes, (2) whether DOE has met its statutory deadlines for determining if states should consider adopting revisions to the residential model building code, and (3) whether and, if so, to what extent DOE tracks states’ building codes. This appendix contains information about these objectives. To address the commercial and residential building code determinations DOE has completed, we reviewed the requirements and deadlines for building code determinations contained in statute and DOE determinations published in the Federal Register. We also interviewed and obtained documents from officials at DOE, PNNL, ASHRAE, ICC, and the

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American Council for an Energy Efficient Economy. Since DOE program officials use ASHRAE’s and ICC’s revision publication dates as the trigger date for DOE’s deadlines for making determinations, we used these dates for our analysis. We did not attempt to determine why DOE might miss deadlines for determinations or why individual states adopt building codes.

DOE Has Completed One of Three Commercial Building Code Determinations DOE has completed only one of three commercial model building code determinations that have come due. DOE issued a positive determination for the first of three revisions to ASHRAE’s Standard 90.1 about 17 months after the deadline. As of December 2006, DOE had not completed determinations for either of the remaining revisions and has decided to combine them. Table 5 provides details about the revisions’ publication dates, the deadlines for the determinations, and the status of DOE’s reviews. Table 5. Status of DOE’s Review of ASHRAE Standard 90.1 Revisions ASHRAE revision

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ASHRAE Standard 90.1-1999 ASHRAE Standard 90.1-2001

ASHRAE Standard 90.1-2004

Revision publication date January 28

DOE determination due date January 28

DOE determination issue date July 15, 2002

November 7

November 7

None

December 21

December

None

DOE determination status Completed over 17 months late. Incomplete and over 4 years late.

Incomplete and over 1 year late.

State certification due date July 15, 2004

2 years after DOE issues the determination . 2 years after DOE issues the determination .

Sources: GAO analysis of ASHRAE, DOE, and Federal Register data.

DOE Has Completed Four of Five Residential Building Code Determinations DOE has completed four of five residential building code determinations that have come due. DOE issued determinations for all of these four CABO/ICC revisions to the MEC/IECC and said the revisions would improve energy efficiency. DOE completed its first determination on time and completed the next three from 1 month to over 1 year late. As of December 2006, DOE had not yet completed the determination for the fifth IECC revision. Table 6 provides details about the revisions’ publication dates, the due dates for the determinations, and the status of DOE’s reviews.

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DOE Tracks States’ Building Codes DOE and PNNL staff track states’ commercial and residential building codes and publish information about them on DOE’s Web site. PNNL staff told us they e-mail state officials twice a year to confirm that DOE has the most current information about the states’ commercial and residential building codes and to obtain any updated information. Additionally, they are in frequent contact with the states and continually update their information on states’ building codes. DOE’s Web site reports the type of code adopted by each state and whether builder compliance with the code is voluntary or mandatory, and provides limited information about the stringency of the code, which PNNL staff determines by analyzing the state-provided information. For example, DOE’s Web site reports that Florida has adopted mandatory codes for both commercial and residential buildings and that the commercial building code is more stringent than the ASHRAE 90.1 2001, and the residential building code is more stringent than the 2000 IECC. The complete list of state commercial and residential building codes for energy efficiency is available at http://www.energycodes.gov/implement/state_codes/state_status_full.php. Although the information published on DOE’s Web site compares the stringency of state codes with ASHRAE’s and ICC’s model building codes, PNNL staff told us the information should not be used to judge the stringency of state codes relative to the ASHRAE’s and ICC codes for which DOE has made a determination. The staff explained that while more recent state codes are generally more energy efficient than older state codes, there are other factors that affect their stringency. For example, states may adopt DOE’s latest determination on ASHRAE’s and ICC’s codes as their state building codes, but may amend them to be weaker or stronger. For example, according to PNNL staff, Georgia adopted the latest DOE residential determination but amended to it to be more similar to prior DOE determinations. In other cases, the changes to a revised code may not affect all states equally; therefore, while a state may not have adopted the most recent revision, the changes in that revision may not have applied to that state anyway. For example, PNNL staff told us that, although Massachusetts did not adopt the 2000 IECC, the differences between the 2000 IECC and the 1995 MEC, which Massachusetts did adopt, did not apply to that state. Therefore, PNNL staff consider Massachusetts’s code to be as stringent as the 2000 IECC. Furthermore, PNNL staff told us that, while some states have adopted model building codes that are more recent than those for which DOE has issued a determination, these codes should not be assumed to be more stringent than those for which DOE has made a determination until PNNL makes a comparable technical analysis. PNNL staff told us that they have the information and technical capability to compare the stringency of all the state codes with those for which DOE has made a determination. However, they said they typically analyze building codes on a state-bystate basis only at DOE’s request and that they do not currently have a comprehensive analysis of how all states’ codes compare to DOE’s latest determinations. As of September 2006, DOE had not directed PNNL to complete a comprehensive analysis. DOE officials told us that DOE focuses on facilitating states’ efforts to adopt building codes rather than penalizing them for not meeting DOE building code determinations and, as such, they do not believe a comprehensive analysis of which states’ building codes are as stringent as those for which DOE has made a positive determination justifies the resources it would require.

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APPENDIX II: OBJECTIVES, SCOPE, AND METHOD Our objectives were to examine (1) the extent to which DOE has met its statutory obligations to issue rules on minimum energy efficiency standards for consumer products and industrial equipment and (2) whether DOE’s plans are likely to clear the backlog of required rulemakings and whether these plans could be improved. To address these objectives, we reviewed the statutory requirements and deadlines for developing energy efficiency standards for consumer products and industrial equipment, program information available on DOE’s Web site, information provided by program staff, and DOE’s January 2006 and August 2006 reports to Congress. For the purposes of our review, we did not include the 17 additional product categories that the Energy Policy Act of 2005 added to DOE’s responsibilities, including the one that came due in August 2006. Although DOE is also required to issue rules regarding standards for plumbing products, we excluded them from this chapter because they primarily involve conserving water, rather than energy. Furthermore, we did not evaluate the merit of the standards DOE has issued. We conducted interviews with DOE program officials; officials of the Office of General Counsel; officials at Lawrence Berkeley National Laboratory, the National Energy Technology Laboratory, and the National Institute of Standards and Technology; and a regulatory process expert at the Department of Transportation. We also interviewed officials at the American Council for an Energy Efficient Economy; the Appliance Standards Awareness Project; the American Society of Heating, Refrigerating and Air-Conditioning Engineers; the California Energy Commission; Pacific Gas and Electric Company; and Natural Resources Canada; and obtained documentation as needed. We analyzed data on DOE’s rulemaking process, estimates of national energy savings from energy efficiency standards, and program resources. In addition, we used a Web-based, modified Delphi method to obtain views from a panel of 33 stakeholders on the causes and effects of delays in setting standards and on proposed solutions to these delays. The Delphi method is a systematic process for obtaining individuals’ views on a question or problem of interest and, if possible, obtaining consensus. Our modified Delphi method had two phases. Phase 1 consisted of a series of open-ended questions concerning DOE’s delays. In Phase 2, panel members rated the significance or priority of the causes of delays, effects of delays, and solutions to delays that they had identified in phase 1. We selected the panel members from a group of stakeholders who were both widely recognized as knowledgeable about one or more key aspects of energy efficiency standards, and who were involved or familiar with DOE’s rulemaking process. The group included officials from federal and state agencies, manufacturers, trade associations, energy efficiency advocacy groups, consumer interest groups, utilities, and utility associations, some of whom were previously employed by DOE as participants in the rulemaking process. We used a variety of methods to determine that the panelists we selected had the expertise necessary to participate in the panel. A list of the 33 panel members is included in appendix IV. To report panel results, when two-thirds or more of the panel agreed, we use the term “most.” When one-half of more of the panel agreed, we use the term “the majority.” We conducted our review from June 2005 through January 2007 in accordance with generally accepted government auditing standards.

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APPENDIX III: RULEMAKINGS AND DELAYS FOR CONSUMER PRODUCTS AND INDUSTRIAL EQUIPMENT WITH DEADLINES THAT HAVE PASSED Consumer product or industrial equipment category Consumer products Clothes washers Refrigerators, refrigeratorfreezers, and freezers Small furnaces Central air conditioners and heat pumps Clothes dryers Dishwashers Fluorescent lamp ballasts Room air conditioners Water heaters Direct heating equipment Furnaces General service fluorescent lamps and incandescent reflector lamps Additional general service fluorescent and general service incandescent lamps Kitchen ranges and ovens Mobile home furnaces Pool heaters Industrial equipment Electric motors–not requiring national certification

First rule Due date

Actual date

Years delayeda

01/01/90 07/01/89

05/14/91 11/17/89

1.4 0.4

01/01/89 01/01/94 01/01/90 01/01/90 01/01/92 01/01/92 01/01/92 01/01/92 01/01/94 04/24/97

11/17/89 01/22/01 05/14/91 05/14/91 09/19/00 09/24/97 01/17/01 Overdue Overdue Overdue

11/15/98

Second rule Due date

Actual date

Years delayeda

01/01/95 07/01/94

01/12/01 04/28/97

6.0 2.8

0.9 7.1 1.4 1.4 8.7 5.7 9.0 15.0 13.0 9.7

Included in “Furnaces” deadlineb 01/01/01 01/01/95 01/01/95 01/01/97 01/01/97 01/01/00 01/01/00 01/01/07 04/24/02

N/A Overdue Overdue Overdue Overdue Overdue Overdue Overdue Not due Overdue

N/A 6.0 12.0 12.0 10.0 10.0 7.0 7.0 Not due 4.7

Overdue

8.1

N/A

N/A

01/01/92 01/01/92 01/01/92

Overdue Overdue Overdue

15.0 15.0 15.0

Included in general service fluorescent lamps and incandescent reflector lamps deadlinec 01/01/97 Included in Furnaces deadlineb 01/01/00

Overdue N/A Overdue

10.0 N/A 7.0

10/24/99

Overdue

7.2

10/24/04

Overdue

2.2

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Consumer product or industrial equipment category Electric motors– requiring national certification Distribution transformers Small electric motors

First rule Due date 10/24/01

Actual date Overdue

Years delayeda 5.2

10/24/96d 10/24/96d

Overdue Overdue

10.2 10.2

Second rule Due date 10/24/06

Actual date Overdue

Years delayeda 0.2

N/A N/A

N/A N/A

N/A N/A

Source: GAO analysis of DOE data. a Calculations for years delayed for overdue rules are as of December 31, 2006. b Subsequent updates to standards for the category called Furnaces are intended to cover updates for mobile home furnaces and small furnaces and are included in the Furnaces deadlines. c Subsequent updates to standards for the category called “General service fluorescent lamps and incandescent reflector lamps” are intended to cover updates for “Additional general service fluorescent lamps and incandescent reflector lamps” and are included in the Furnaces deadlines. d Deadline for setting initial standard following determination of feasibility (18 months after publication of testing requirements.)

Energy Efficiency: Long-standing Problems with DOE’s Program…

APPENDIX IV: PARTICIPANTS IN ENERGY EFFICIENCY STANDARDS DELPHI PANEL Karim Amrane Air-Conditioning and Refrigeration Institute Donald Brundage Southern Company David Calabrese Association of Home Appliance Manufacturers Thomas Catania Whirlpool Corporation Sue Coakley Northeast Energy Efficiency Partnerships James Crawford Trane and American Standard Andrew deLaski Appliance Standards Awareness Project

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Thomas Eckman Northwest Power and Conservation Council Andrew Fanara Environmental Protection Agency Gary Fernstrom Pacific Gas and Electric David Goldstein Natural Resources Defense Council Mel Hall-Crawford Consumer Federation of America Carl Hiller Applied Energy Technology John Holt National Rural Electric Cooperative Association

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United States Government Accountability Office Earl Jones GE Consumer & Industrial Joseph Mattingly Association of Appliance & Equipment Manufacturers James McMahon Lawrence Berkeley National Laboratory Deborah Miller ICF Consulting Harry Misuriello Alliance to Save Energy Jim Mullen Lennox International Inc. Steven Nadel American Council for an Energy-Efficient Economy Kyle Pitsor National Electrical Manufacturers Association

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James Ranfone American Gas Association Priscilla Richards New York State Energy Research and Development Authority Michael Rivest Navigant Consulting, Inc. Steve Rosenstock Edison Electric Institute Michael Sherman Massachusetts Division of Energy Resources Doug Smith Van Ness Feldman Sriram Somasundaram Pacific Northwest National Laboratory David Steiner

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Energy Efficiency: Long-standing Problems with DOE’s Program… Maytag Corporation Charlie Stephens Oregon Department of Energy Tim Stout National Grid USA John Wilson California Energy Commission

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APPENDIX V: COMMENTS FROM THE DEPARTMENT OF ENERGY

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Energy Efficiency: Long-standing Problems with DOE’s Program…

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REFERENCES [1]

DOE’s energy efficiency standards program is separate from the Energy Star program, which is a joint DOE-Environmental Protection Agency voluntary labeling program that identifies and promotes the products that meet the most efficient energy conservation standards.

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.

[2] [3] [4]

[5]

[6]

[7]

[8] [9] [10]

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[11]

[12]

[13]

[14]

GAO, Energy Conservation: Appliance Standards and Labeling Programs Can Be Improved, GAO/RCED-93-102 (Washington, D.C.: March 1993). Department of Energy, Energy Conservation Standards Activities. (Washington, D.C.: Jan. 31, 2006). The second report, released in August 2006, reiterated the catch-up plan and reported on DOE’s actions toward clearing the backlog. These actions include making progress on and issuing rules related to the standards-setting process, but none established new standards for the products and equipment included in the scope of this report. This reported backlog did not include an additional 17 product categories added by EPAct 2005 to DOE’s mandate for setting energy efficiency standards, 9 of which have deadlines for DOE rulemakings. These additional responsibilities were not part of our review. California has set standards for products not covered under federal law, such as commercial clothes washers and external power supplies for electronic devices such as laptop computers, mobile phones, printers, and digital cameras. Before DOE published proposed distribution transformer standards, the Energy Policy Act of 2005 established energy conservation standards for low-voltage, dry-type distribution transformers. Pub. L. No. 109-58 §135(c)(3) (codified at 42 U.S.C. § 6295(v)). Consequently, DOE’s proposed standards do not apply to these types. 71 Fed. Reg. 44,356, 44,357 (Aug. 4, 2006). Amegawatt is a measure of a flow of electricity; 1,000 megawatts is a sufficient flow of electricity to power about 750,000 homes. Procedures for Consideration of New or Revised Energy Conservation Standards for Consumer Products, Final Rule, 61 Fed. Reg. 36,973 (July 15, 1996). GAO, Agencies’ Annual Performance Plans Under the Results Act, GAO/GGD/AIMD10. 1. 18 (Washington, D.C.: February 1998). The Unified Agenda (also known as the Semiannual Regulatory Agenda), published twice a year in the Federal Register, summarizes the rules and proposed rules that each federal agency expects to issue during the next 6 months. The PMF program is a 2-year paid government fellowship sponsored by the Office of Personnel Management for recent graduate students who seek a professional experience in the U.S. government. New York v. United States, 505 U.S. 144 (1992) (holding that a provision of the LowLevel Radioactive Waste Policy Act, requiring states to take ownership of waste or regulate according to instructions of Congress, was invalid). The court also stated that Congress may hold out incentives to the states as a means of encouraging them to adopt suggested regulatory schemes and offer states the choice of regulating an activity according to federal standards or having state law preempted by federal regulation. ADOE staff member noted that the Energy Conservation and Production Act, as amended, does not contain a provision authorizing DOE to enforce these provisions.

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Chapter 4

TESTIMONY OF JONATHAN KOOMEY, LAWRENCE BERKELEY NATIONAL LABORATORY, STANFORD UNIVERSITY, BEFORE THE JOINT ECONOMIC COMMITTEE OF THE UNITED STATES CONGRESS, FOR A HEARING ON EFFICIENCY: THE HIDDEN SECRET TO SOLVING OUR ENERGY CRISIS, JULY 30, 2008

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ABSTRACT This testimony responds to an invitation from the Joint Economic Committee of the U.S. Congress to explore the potential contribution of cost-effective energy efficiency investments to solving the current energy crisis. This hearing comes at a propitious time. By July 2008, the acquisition cost of imported crude oil to the U.S. had increased eleven-fold in inflation-adjusted terms from its most recent low in December 1999 (based on Energy Information Administration data), and other energy prices have been increasing as well. We depend increasingly on oil imports from unstable parts of the world, and the world’s fossil fuel consumption is (with more than 90% probability) warming the globe (according to the latest reports from the Intergovernmental Panel on Climate Change). Various analysts and political leaders have advocated increasing the supply of energy through expanded offshore oil drilling, more construction of power plants, and increased production of alternative fuels, some of which surely is necessary to meet the joint challenges of oil dependency and climate change. But there has been remarkably little focus (relative to the vast potential) on America’s secret energy surplus, “energy production” from innovation in the efficient end-use of energy. In the three decades since the energy crises of the 1 970s we’ve learned a great deal about the potential for energy efficiency and the means to deliver it cost effectively and reliably. Back then, many analysts still held to the now discredited “ironclad link” between energy use and economic activity, which implied that any reduction in energy use would make our society less wealthy. Now we know that there are many different ways to produce a dollar of GDP using current technologies, some energy efficient and others not. We know that the available efficiency resources are enormous and largely untapped. We know that markets, while generally the best way to provide goods and

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Testimony of Jonathan Koomey services, can fail in ways that can be fixed by clever policy choices and business incentives, resulting in lower energy use and a total cost to society (including the implementation costs of those efficiency policies and programs) that is less than that of preserving the status quo. We also know that making efficiency profitable for business is one of the fastest ways to make it happen, although sometimes incentives, government mandates, and other programs are required. Finally, we know that increasing energy efficiency is a question of innovation, not just in technology but also in institutional arrangements and incentives, and if we’re fast and smart about it, that innovation can result in direct economic savings to our economy and products and services that we can sell overseas, generating even more economic activity right here in the U.S.

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INTRODUCTION My name is Jonathan Koomey. I’m a project scientist with Lawrence Berkeley National Laboratory and a Consulting Professor at Stanford University. This testimony represents my own professional opinion and in no way represents the views or positions of Lawrence Berkeley National Laboratory, the Department of Energy, or Stanford University. Given the title of this hearing and recent events, I take it as a given that we are experiencing an energy crisis. The question is: what can and should we do to address this crisis? What I'd like to make clear today is that energy efficiency is an essential part of the solution. It is the fastest, cheapest, cleanest way to address the problems of oil dependency and climate change. Since the energy crises of the 1970s we have learned a great deal about the potential for energy efficiency and the means to deliver it cost effectively and reliably: First, energy efficiency is the key to growing our economy while using less energy in the process. Second, the available efficiency resources are enormous and largely untapped. Third, while markets are generally the best way to provide goods and services, they can fail in ways that result in the waste of (or the inefficient use of) our energy resources. Clever policies and programs can fix these failures and reduce energy use at a cost that is less than that of doing nothing. Fourth, making efficiency profitable for business is one of the fastest ways to improve energy efficiency, although sometimes incentives, government mandates, and other programs are required. Finally, improving the efficiency of energy use depends on innovation, not just in technology but also in institutional arrangements and incentives. If we’re fast and smart about it, that innovation can result in products and services that generate increased economic activity right here in the U.S. In short, we can use our country's ability to innovate to substitute for using and importing energy resources – an effort that will leave our economy and the environment richer in the end.

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BACKGROUND AND EXPERIENCE I led the energy forecasting group at Lawrence Berkeley National Laboratory for more than eleven years (from 1991 to 2002) and I’ve been working on evaluating alternative energy futures for more than two decades. I was a central participant in five of the most important and comprehensive energy policy studies to be conducted during the past twenty years:

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1. The Energy Policy in the Greenhouse study of European options for reducing carbon emissions, conducted by the International Project for Sustainable Energy Paths for the Dutch Ministry of Environment, with books and reports released over the period 1989 through 2001 [1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11]. 2. A detailed multi-year analysis of the economics of reducing carbon emissions in the New England electric utility sector, conducted by Lawrence Berkeley National Laboratory and completed in 1992 [12, 13]. 3. The first “Five labs” study completed in 1997, conducted by five Department of Energy National Laboratories (Argonne National Laboratory, National Renewable Energy Laboratory, Lawrence Berkeley National Laboratory, Oak Ridge National Laboratory, and Pacific Northwest National Laboratory). This study focused on options for reducing U.S. carbon emissions [14, 15, 16]. 4. The second “Five labs” analysis, completed in 2000-2001, known as the “Clean Energy Futures” Study, which still stands as the most detailed, authoritative, and comprehensive scenario analysis ever undertaken of U.S. energy futures [17, 18, 19, 20, 21, 22, 23, 24]. 5. The “Winning the Oil Endgame” study conducted by Rocky Mountain Institute and released in September 2004. This study focused on options for reducing and eventually eliminating oil dependence in the U.S. [25] Energy efficiency played a central role in all of these studies, as did energy supply technologies. We’ll need both if we’re to reduce oil dependency and greenhouse gas emissions significantly.

WHAT DO WE MEAN BY EFFICIENCY? People don’t care about energy use, they care about the services that energy delivers, like warm rooms, cold drinks, and well-lit garages. Efficiency means delivering the same services using less energy. Cost-effective efficiency means that the total societal cost for delivering those services with the efficient technology installed (including all capital, operating, pollution, and program implementation costs) will be less than that for keeping things the way they are now. Cost effective from society’s perspective is not the same thing as cost effective from the individual’s perspective. The transaction costs and information costs associated with a consumer buying an efficient product instead of an inefficient one are real societal costs. But just because consumers face those costs doesn’t mean those costs can’t be reduced or eliminated by policy action. For example, the Energy Star label, which is awarded by the U.S.

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Environmental Protection Agency and U.S. Department of Energy to products that will both save money and reduce pollution, is a voluntary collaboration between government and industry . That label helps consumers, who no longer need to do any calculations to figure out which products are worth buying— they just look for the label. And minimum efficiency standards overcome the transaction costs issue by simply eliminating the inefficient products from the market, doing so in a way that does not apparently reduce features or affect costs significantly, at least for refrigerators, one of the earliest products to be regulated in this fashion [26]. As long as programs are based on rigorous cost/benefit analyses (as these are) then society will become more efficient as a result, both in energy and economic terms. And that is the goal of increasing efficiency—to improve societal well being while also improving environmental quality.

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HOW COME PEOPLE DON’T BUY EFFICIENCY ANYWAY? An economist and an engineer are walking down the street. The engineer sees a $20 bill and says “Look, a $20 bill!” The economist says “That’s impossible. If a $20 bill had been on the street, somebody would have picked it up already.” That joke more or less frames the historical debate on this topic. People have known for a long time that consumers and institutions don’t invest in efficiency options that seem to be cost effective, creating what is known in the literature as “the efficiency gap” or “the efficiency paradox” [2, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45]. This issue has in the past been portrayed as a conflict solely between engineers and economists, with the engineers arguing for the existence of cost effective efficiency based on their experience with technologies in the field, and the economists arguing against it based on economic theory. That characterization is no longer accurate. The conflict is really among economists (with the engineers supplying supporting data and evidence), with many economists now realizing that the simple models on which their initial skepticism is based do not accurately characterize the phenomena they claim to describe. Some of the most interesting recent work in economics has focused on transaction costs, information costs, information asymmetries, misplaced incentives, cognitive failures, differential risk aversion, principal-agent problems, path dependence, and increasing returns to scale [2, 39, 40, 46, 47, 48, 49]. These issues dominate people’s choices about energy efficiency, and they are in many cases amenable to policy action, which in my view is where the answer to the paradox lies. So that $20 bill on the sidewalk might be better characterized as 2000 pennies, as Florentin Krause points out. And the policy instruments like Energy Star labeling are equivalent to giving the engineer better glasses to help her to see the pennies and a broom and dustpan to help her sweep them up. But just how many pennies are there, and what will it take to put them in the bank?

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THE SIZE AND COST OF THE AVAILABLE RESOURCE It is no longer credible to claim, based on economic theory, that there is no cost effective efficiency to be tapped. The real questions are “Just how much efficiency can be costeffectively captured, and how much will it cost?” These questions are ultimately empirical ones that can only be answered precisely by actually attempting to implement efficiency and evaluating the results, but the findings from analytical and evaluation studies of previous programs are encouraging. In a world in which perfect markets prevail, the business-as-usual or base-case forecast includes all cost-effective efficiency improvements. If there are market imperfections that inhibit the adoption of energy efficiency (as there often are), then an additional potential for savings may exist. This potential can be characterized in a "technical" or "techno-economic" fashion. The techno-economic potential gives the costs and savings possible if all possible and cost-effective options are implemented starting immediately, gradually replacing existing equipment through the end of the analysis period [50]. It captures the dynamics of stock turnover and generates reasonable upper bound efficiency potential estimates for end-uses where the technologies and dynamics are well understood. Estimating such potentials requires detailed knowledge of how energy is used in particular end uses, as well as the cost and effectiveness of different technologies to reduce that energy use. The techno-economic potential is characterized by calculating a cost of conserved energy (CCE, in cents per kWh of electricity, dollars per barrel of crude oil, or dollars per gallon of gasoline) and an energy savings for each measure, relative to the base case. In the real world, policies and programs are imperfect, so the techno-economic potential must be adjusted downwards to reflect those constraints [51]. We then estimate what is termed an “achievable potential” that captures some fraction of the savings from the technoeconomic potential. This “achievable fraction” is a function of the aggressiveness of policies and the time horizon of the analysis. For a longer time horizon, more equipment is retired naturally and more of the efficient devices can then be installed, thus increasing the potential savings. There are few recent studies of the potential for efficiency in the U.S., but assessments of efficiency potentials have been conducted for more than three decades [7, 12, 14, 17, 25, 50, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66] They generally find significant costeffective efficiency potentials in a wide variety of end-uses, although they differ on methods and exact results. A recent analysis by McKinsey and Company [67] draws from previous energy research to focus on the potential for reducing greenhouse gas emissions in the U.S. This study estimated a significant contribution to emissions reductions from efficiency, but the report itself does not allow easy estimation of the technical details associated with those efficiency potentials. The most detailed study of efficiency potentials for buildings in the past decade was the Clean Energy Futures study [20], which estimated technical and achievable efficiency improvements by 2020. Brown et al. [68] used the CEF analysis and some simple assumptions to estimate techno-economic potential savings to 2030 relative to the Energy Information Administration’s Annual Energy Outlook 2007 [69]. The Brown et al. study

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found that the techno-economic potential was about one third of the base case electricity use for both residential and commercial buildings in 2030. How much of that techno-economic potential could reasonably be captured by 2030? The original CEF study made explicit assumptions about the adoption rates for specific policies, programs, and technologies. In the CEF moderate case (whic h assumes only modest changes in policies and incremental improvements in technology) the achievable savings were a little more than one third of the techno-economic potential savings by the end of the analysis period, yielding a total achievable savings of about 10% relative to the base case by the end of the analysis period. In the advanced case (which included more and more aggressive programs, policies, and technologies), the achievable savings reached about half of the techno-economic potential savings by the end of the analysis period, representing a total achievable savings of about 15% of the baseline at the end of 20 years. Given a longer time horizon, much more of the techno-economic potential could be captured (and the techno-economic potential could actually increase as innovation improves the capabilities and reduces the costs of efficiency technologies). Brown et al. [68] also assessed the economics of the efficiency investments from 2010 to 2030, based on the CEF analysis. The benefit/cost ratio for these efficiency options is about 3.5, meaning that every dollar spent on efficiency returns 3.5 dollars of savings to the economy. On average, these investments would pay for themselves in 2.5 years.

Figure 1. Residential Techno-economic Savings Potential for Electricity, 2030.

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Source: Brown et al. [68].

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Figure 2. Commercial Techno-economic Savings Potential for Electricity, 2030.

The most detailed recent assessment of efficiency improvements affecting oil use is contained in Lovins et al.[25]. This study estimated potential savings in U.S. oil use for two cases. The first case was termed “conventional wisdom”, representing the potential savings from incremental changes using “off the shelf” technologies for all types of oil using equipment. The second was termed “state-of-the-art”, which assumed “clean slate, whole systems redesign” of automobiles, trucks, planes, and other vehicles, using technologies that had been at a minimum demonstrated in prototypes by around the year 2004 (and accounting for the time needed to design and build production vehicles based on those prototypes). The conventional wisdom case showed techno-economic potential savings of about 25% compared to the 2025 baseline oil use in the Energy Information Administration’s Annual Energy Outlook 2004, at a cost of conserved energy of about $6/barrel of crude oil. The stateof-the-art case showed techno-economic potential savings of about 50% compared to the base case forecast, at an average cost of conserved energy of about $12/barrel of crude oil. At the time the “Oil Endgame” analysis was published the Energy Information Administration predicted crude oil prices in 2025 of $26/barrel in year 2000 dollars. Now, of course, that prediction looks low, and the EIA has adjusted its forecast to about $48/barrel of crude oil (2000 dollars). In either case, energy efficiency is a terrific bargain, saving society a great deal of money while also reducing oil dependence and emissions of greenhouse gases. The historical policy experience in California [70] and the U.S. [71, 72, 73, 74] yields similar results, as does the program evaluation literature. Program evaluations are conducted by electric utilities to understand the impacts and costs of their efficiency programs [75]. Two exemplary reviews of such studies in the mid -1990s found that commercial sector utility efficiency programs were generally quite cost effective when evaluated from society’s perspective [76, 77]. Another analysis of commercial lighting addressed challenges to such evaluation results from the economics community and concluded that the societal cost-benefit

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analysis for the efficiency programs evaluated had indeed been conducted correctly [78]. More recent evaluation work for California is available at . The most important point to take from these studies is that there are many untapped options available to improve efficiency of energy use, and that this energy efficiency costs a lot less than buying energy, be it oil, electricity, or natural gas. Procuring efficiency also avoids the costs and risks of oil dependency, local air pollution, and climate change in the bargain, and is faster to implement than most supply side options. The exact size of the efficiency resource is ultimately a function of how much we invest in research and development and how successful our policies and programs are at breaking down barriers to cost effective efficiency, but we know there’s a lot of efficiency that’s ours for the taking. So what do we need to do to capture it?

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CAPTURING COST-EFFECTIVE EFFICIENCY There are many summaries of the policies and programs needed to capture efficiency, but two of the most comprehensive ones are Scenarios for a Clean Energy Future [17, 18] and Winning the Oil Endgame [25]. The National Action Plan for Energy Efficiency [79] gives broad recommendations for successful energy efficiency implementation, and Skip Laitner of the American Council for an Energy Efficient Economy gave some very specific recommendations recently in testimony before the U.S. Senate Committee on Natural Resources [80]. There are many other reports with similar lists and I won’t describe their recommendations in detail, but I summarize them here. They include both energy pricing policies (in the form of emissions trading or carbon taxes) and non-price policies, including increased effort on labels like Energy Star, minimum efficiency standards, incentives to consumers for the purchase of efficient products (positive, negative, or revenue-neutral feebates), incentives to utilities for promoting efficiency, demonstration projects for innovative technologies, prizes for achieving efficiency goals, business plan competitions for promoting startup companies, government and business procurement of efficient products, and greater research and development spending, which has fallen to historic lows from the late 1 970s [81]. Pricing policies are useful in promoting supply side fuel switching, but are much less so for efficiency. A simple calculation demonstrates why. A carbon tax of $50/metric tonne of carbon (which is the level considered in the Clean Energy Futures study that led to very substantial changes in electricity supply side investments) would raise gasoline prices by about 12 cents per gallon, barely enough to notice in a world of $4/gallon gasoline. And 3040% of building sector energy use in developed nations is afflicted by the so -called principalagent problem, where the person buying and operating the equipment is not the same one who pays the energy bills, making those users impervious to price signals [48, 49]. So getting prices right is not enough. To achieve large efficiency improvements–that is, to stop installing wasteful designs of buildings, equipment, appliances and lighting–we’ll also need non-price policies as described above, and other innovations, as described below.

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WHAT KINDS OF INNOVATIONS ARE NEEDED? The central organizing principle for research, development and incentive policies should be what Amory Lovins of Rocky Mountain Institute (RMI) calls “clean slate, whole system redesign”. Instead of promoting incremental efficiency improvements, as is so often done, institutions should redesign energy intensive products from the ground up. Most technologies are the result of an evolutionary path that is heavily dependent on history. Instead, the focus should be on delivering the services that people demand with products that are just better in every way (not just more efficient, but also more desirable for their other attributes). And innovation needs to come to institutions as well as technologies, to harness the power of business in the pursuit of efficiency. One reason why Energy Star is so successful is because the program helps make efficiency profitable—it gives companies that produce efficient products a marketing advantage over those producing the less efficient devices. Modern companies are brilliant at replicating a proven business model on a large scale, which is one example of what economists call “increasing returns to scale” [82]. Imagine if a large retailer (like Costco or Walmart) decided that they would only stock Energy Star products from now on (for those products for which a label is available). This action would create a large market for efficient products, making them widely available and turning them from niche products to those with large market share. It would put pressure on the producers of those products to reduce their prices, which would be justified because of the larger production scale that orders of that size would enable. And the markups that companies up and down the value chain formerly applied to these niche products would shift overnight to markups appropriate to products that are widely used, further lowering the price to consumers. That example shows the power of increasing returns if properly applied. We’re only at the beginning of understanding and using this concept to our advantage in promoting efficiency. Two other important institutional innovations relate to electric utility profits, which for 45 states and the District of Columbia are directly tied to electricity sales: every kilowatt-hour of electricity saved means a reduction in profits for the utility. According to the Natural Resources Defense Council, only five states as of July 2008 (CA, DE ID, MD, NY) have adopted legislation to decouple electricity sales from profits. And only five states (CA, ID, MN, WA, WI) have implemented profit incentives for efficiency investments by utilities. We know from the history in California that utilities are enthusiastic and productive efficiency investors when they make money at it. These two institutional innovations (decoupling and profit incentives for utilities) should go nationwide. Information technology (IT) is one of our most powerful allies in the quest for efficiency [83]. IT helps because moving bits is much less energy intensive than moving atoms, because it allows us to collect more and better data, and because it, more than any other technology, allows us to tap into increasing returns to scale. Amory Lovins of Rocky Mountain Institute says "Move the electrons, leave the heavy nuclei at home". So instead of traveling to Bangalore for a planning meeting, an engineer can use modern “telepresence” technology to meet with his colleagues virtually, saving a great deal of energy, but also avoiding the wasted time, money, and human cost of international travel [84]. If you’ve seen such a system recently (as I have), you know just how far this technology has come since the early days of video conferencing. Significant energy savings

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accrue because the nucleus of atoms is thousands of times more massive than the electrons carrying the information over the network. IT also lets us collect more data and better data, which helps us make better decisions. In data centers, the high density computing facilities upon which all companies now rely, the advent of cheaper sensors and ever more powerful computing is helping people manage their costs and energy use more effectively than ever before. And more accurate data allows companies to more effectively identify and eliminate misplaced incentives that inhibit efficiency [85], because the consequences of such institutional problems become manifest more quickly. Since the 1990s, commercial enterprises have developed and utilized computer analysis tools to manage a wide variety of risks. In contrast, investments in energy efficiency are not typically evaluated in a risk analysis, but treated much more conservatively, usually by using a simple payback analysis. Those enterprises that explicitly analyze the opportunities for energy efficiency and implement cost-effective options will benefit their bottom line [86]. IT also helps users manage data more effectively, particularly when data are released in a standardized format. For example, electric utility rates, which are now almost exclusively printed on paper, are difficult to manage for large companies with facilities in many states. The rates are complicated and they vary state-by-state and over time in unpredictable ways. If the federal government were to promote the development of a standardized electronic format for utility rates it would allow greater efficiencies in the design and energy management of facilities owned by multi-state and multi-national companies. The Lawrence Berkeley National Laboratory tariff analysis project made a first pass at creating a database of such tariffs manually , but that’s a far cry from having such data released and updated automatically by each utility. A nice side effect of such standardization would be that web-based energy analysis tools could more easily evaluate utility bills for residential and smaller commercial customers as well. One of the main reasons companies are now so good at replicating business practices is because of the scalability of IT infrastructure. There are terrific returns to scale with these systems, and once a new business model has proven itself in one store, a large company can very easily roll it out to all its other stores in a matter of days [82]. The power of this technology puts increased economic and resource efficiency within our grasp, and we can improve efficiency much more rapidly now than we could in the past.

RECOMMENDATIONS Some have called for an Apollo project to attack the current energy crisis [87], but I think a better analogy would be what happened after the Russians launched Sputnik [88]. The U.S. invested massively in science and engineering education, in technology, and in research and development, across the board. The whole society was mobilized to meet the challenge, and the Apollo project was just one manifestation of that effort. Meeting the current energy challenge will require mobilizing our entire society again, this time to promote energy innovation. Congress can aid that effort in several ways.

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First, I suggest that the National Academies and the National Science Foundation be commissioned to evaluate

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1. the need for addition al research and development (R&D) and the effectiveness of the current R&D portfolio across the entire federal government, with particular emphasis on the potential for clean-slate whole -systems redesign as a central organizing principle for these efforts. 2. the need for increased funding for science and engineering education from kindergarten through post graduate work 3. the current portfolio of energy efficiency standards, focusing particularly on standards that have been passed by the state of California that have not yet been passed by the federal government, on end-uses where significant cost-effective energy efficiency potential remains [89], and in enduses that are affected most strongly by the principal-agent (landlord/tenant) problem [49]. 4. the use of prizes (like the X-prize for space travel) to promote breakthrough innovations in energy efficiency and alternative fuels 5. the use of revenue neutral “feebates” for promoting efficiency in light vehicles, given that this policy has the potential to promote ef ficiency and increase the profitability of domestic automobile companies [25]. 6. the use of new information technologies (such as improved video conferencing, electronic tolls for roadways, radio frequency identification (RFID), and wireless sensor networks) to improve the overall resource and energy efficiency of technological systems both within and outside the federal government.. Second, the U.S. Department of Energy and the Federal Energy Regulatory Commission should be asked to assess the benefits and costs of promoting standardized electronic formats for utility rates. Finally, the relevant agencies in the Federal government should collaborate with the utility industry and the National Association of Regulatory Utility Commissioners to promote the adoption of decoupling of utility profits from electricity sales and the implementation of direct profit incentives for utility investments, both of which have been successful in California in making utilities enthusiastic advocates for energy efficiency. Adopting those institutional innovations in the states that do not now have them is one of the largest single steps we as a society could take to promote energy efficiency on a large scale.

CONCLUSIONS Efficiency is the cheapest, cleanest, and fastest source of new energy “supply”—it can both save money and improve environmental quality. This insight is not a new one, but the U.S. has been reluctant to fully embrace it. There have been some notable historical successes with CAFE standards for automobiles, minimum efficiency standards for appliances, Energy Star labeling, and utility efficiency programs, but we have not yet tried a “full court press” for energy efficiency. The name of the game is innovation in technologies, policies and

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behaviors, and we as a society need to make that innovation occur more rapidly, more broadly, and more effectively than it ever has before. Our choices today affect the choices we will have tomorrow. Continuing to install inefficient products will strand investment and delay the transition to using Ð and marketing to the world Ð efficient alternatives. If we choose to invest in research, development, demonstration and implementation we can have a much more efficient future than we would have otherwise, with co-benefits in energy security, economics and the environment. This future is within our grasp —we just need to reach for it.

REFERENCES Krause, Florentin, Wilfred Bach, and Jon Koomey. 1989. From Warming Fate to Warming Limit: Benchmarks to a Global Climate Convention. El Cerrito, CA: International Project for Sustainable Energy Paths. [2] Krause, Florentin, Eric Haites, Richard Howarth, and Jonathan Koomey. 1993. Cutting Carbon Emissions–Burden or Benefit? The Economics of Energy-Tax and Non -Price Policies. El Cerrito, CA: International Project for Sustainable Energy Paths. [3] Krause, Florentin, Wilfred Bach, and Jonathan Koomey. 1992. Energy Policy in the Greenhouse. NY, NY: John Wiley and Sons. [4] Krause, Florentin, Jonathan Koomey, David Olivier, Pierre Radanne, and Mycle Schneider. 1994. Nuclear Power: The Cost and Potential of Low-Carbon Resource Options in Western Europe. El Cerrito, CA: International Project for Sustainable Energy Paths. [5] Krause, Florentin, Jonathan Koomey, Hans Becht, David Olivier, Giuseppe Onufrio, and Pierre Radanne. 1994. Fossil Generation: The Cost and Potential of Low-Carbon Resource Options in Western Europe. El Cerrito, CA: International Project for Sustainable Energy Paths. [6] Krause, Florentin, Jonathan G. Koomey, and David Olivier. 1995. Renewable Power: The Cost and Potential of Low-Carbon Resource Options in Western Europe. El Cerrito, CA: International Project for Sustainable Energy Paths. [7] Krause, Florentin, David Olivier, and Jonathan Koomey. 1995. Negawatt Power: The Cost and Potential of Low-Carbon Resource Options in Western Europe. El Cerrito, CA: International Project for Sustainable Energy Paths. [8] Krause, Florentin, and Jonathan Koomey. 1998. Low Carbon Comfort: The Costs and Potentials of Energy Efficiency in EU Buildings (Final Report). El Cerrito, CA: International Project for Sustainable Energy Paths. January. [9] Krause, Florentin, Jonathan Koomey, and David Olivier. 1999. Cutting Carbon Emissions While Making Money: Climate Saving Energy Strategies for the European Union (Executive Summary for Volume II, Part 2 of Energy Policy in the Greenhouse) . El Cerrito, CA: International Project for Sustainable Energy Paths. October. [10] Krause, Florentin, and Jonathan Koomey. 1996. "The cost of cutting carbon emissions - a case study of Western Europe." Energy Conversion and Management. vol. 37, no. 68. 8 June 1996. pp. 973-978.

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[88] Dickson, Paul. 2003. Sputnik: The Shock of the Century. New York, NY: Berkley Books. [89] Rosenquist, Gregory, Michael McNeil, Maithili Iyer, Steve Meyers, and James E. McMahon. 2004. Energy Efficiency Standards and Codes for Residential/Commercial Equipment and Buildings: Additional Opportunities. Berkeley, CA: Lawrence Berkeley National Laboratory. LBID-2533. July.

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AUTHOR’S BIOGRAPHY Jonathan Koomey is a Project Scientist at Lawrence Berkeley National Laboratory (LBNL) and a Consulting Professor at Stanford University. For more than eleven years he led LBNL’s End-Use Forecasting group, which analyzes markets for efficient products and technologies for improving the energy and environmental aspects of those products . The group develops recommendations for policymakers at the U.S. Environmental Protection Agency and the U.S. Department of Energy on ways to promote energy efficiency and prevent pollution. Koomey is also a Research Affiliate of the Energy and Resources Group at the University of California, Berkeley and serves on the Editorial Board of the journal Contemporary Economic Policy. Dr. Koomey holds M.S. and Ph.D. degrees from the Energy and Resources Group at the University of California at Berkeley, and a B.A. in History of Science from Harvard University. He is the author or coauthor of eight books and more than one hundred and fifty articles and reports on energy efficiency and supply-side power technologies, energy economics, energy policy, environmental externalities, and global climate change. He has also published extensively on critical thinking skills. Dr. Koomey has appeared on Nova/Frontline, BBC radio, CNBC, All Things Considered, Marketplace, On the Media, and Tech Nation, and has been quoted in the New York Times, the Wall Street Journal, Barron’s, The Washington Post, The Financial Times, Science, Technology Review, Dow Jones News Wires, Christian Science Monitor, USA Today, and CIO Magazine, among others. Dr. Koomey has received two outstanding performance awards during his LBNL career, one for his leadership role in the 1997 Interlaboratory study on scenarios of U.S. carbon reductions and the other for his strategic contribution to the 2001 California Energy Crisis web site . In 1993, his article, titled Cost-Effectiveness of Fuel Economy Improvements in 1992 Honda Civic Hatchbacks won the Fred Burgraff Award for Excellence in Transportation Research from the National Research Council's Transportation Research Board. He was an Aldo Leopold Leadership Fellow for 2004 —that program trains environmental scientists and policy analysts to communicate effectively with the media and the public. In January 2005, he was named an AT&T Industrial Ecology Fellow. His latest solo book, Turning Numbers into Knowledge: Mastering the Art ofProblem Solving, was first published in 2001 by Analytics Press , is now in its second edition (2008), and has been translated into Chinese.

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Chapter 5

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TESTIMONY OF DAN W. REICHER, CLIMATE CHANGE AND ENERGY INITIATIVES, GOOGLE.ORG, BEFORE THE JOINT ECONOMIC COMMITTEE, HEARING ON “EFFICIENCY: THE HIDDEN SECRET TO SOLVING OUR ENERGY CRISIS”, JULY 30, 2008 Mr. Chairman, Ms. Vice-Chair, Ranking Members and Members of the Committee, my name is Dan Reicher, and I am pleased to share my perspective on the opportunities and challenges of energy efficiency. I serve as Director of Climate Change and Energy Initiatives for Google.org, a unit of Google which has been capitalized with more than $1 billion of Google stock to make investments and advance policy in the areas of climate change and energy, global poverty and global health. At Google we have been working to lower the cost and increase the deployment of renewable energy, and to accelerate the deployment of plug-in vehicles. We have also been working to increase our use of clean power and energy efficiency at Google data centers and offices in the U.S. and other countries. Together with other technology companies and organizations, Google launched the Climate Savers Computing Initiative last year to reduce the power consumption of computers and servers. Prior to my position with Google, I was President and Co-Founder of New Energy Capital, a private equity firm investing in clean energy projects. New Energy Capital has made equity investments and secured debt financing for ethanol and biodiesel projects, cogeneration facilities, and a biomass power plant. Prior to this position, I was Executive Vice President of Northern Power Systems, one of the nation’s oldest renewable energy companies. Northern Power has built almost one thousand energy projects around the world and has also developed path- breaking energy technology. Prior to my roles in the private sector, I served in the Clinton Administration as Assistant Secretary of Energy for Energy Efficiency and Renewable Energy, the Acting Assistant Secretary of Energy for Policy, and Department of Energy (DOE) Chief of Staff and Deputy Chief of Staff. My message today is simple: to meet the critical challenges of the 21st Century – climate change, energy security, and economic development – we need a bold new vision for how America generates and uses electricity. The core of that vision must be a 21st Century electricity system that is clean, efficient, reliable and secure. Such a system must:

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•

Drive the development and optimization of renewable energy generation and related transmission; Encourage utilities to reduce peak loads, institute real-time pricing, and advance demand-side management; Empower and incentivize businesses and consumers to monitor and reduce their own energy use; and Enable the electrification of vehicles - including vehicle-to-grid capabilities - without a major increase in new generation.

Energy efficiency is fundamental to the changes we must make in our energy system. By many measures, it is our fastest, cheapest and cleanest opportunity to address our energy challenges – the real low-hanging fruit in the U.S. and global economy. From cars and homes to factories and offices, we know how to cost effectively deliver vast quantities of energy savings today. And the exciting fact is that this low hanging fruit grows back. The air conditioner we replace today with a more efficient model, we will be able to replace again with one that uses even less energy and “talks” to the electric grid to better manage peak electricity demand. Similarly, we can trade our inefficient SUV today for a more efficient full-featured hybrid gas-electric model. And down the road we will replace the hybrid with an even more efficient model that plugs into the electric grid. We have made an important transition in this country away from a focus on “energy conservation” and toward the more recent concept of “energy efficiency” (or “energy productivity”). In the era of energy conservation in the 1970’s and 1980’s, we were asked to “do less with less” – to lower the thermostat, turn off the lights, don a sweater and leave the car in the garage. Energy efficiency takes a different approach, offering the opportunity to “do more with less”. As McKinsey and Company stated in a 2007 report, “By looking merely in terms of shrinking demand, we are in danger of denying opportunities to consumers – particularly those in developing economies who are an increasingly dominant force in global energy-demand growth. Rather than seeking to reduce end-user demand – and thus the level of comfort, convenience and economic welfare demanded by consumers – we should focus on using the benefits of energy most productively.” As energy guru Amory Lovins puts it: “All people want is cold beer and hot showers. We are interested in the results of energy use, not the energy itself. How much energy we use to cool the beer and heat the water is a choice we make.” The increasing interplay between energy hardware and information software – and the corresponding rise of the Internet and the connectivity it brings – adds to the potential to make and to use energy more productively. From smart meters and smart appliances to smart homes and a smart grid, we are poised to significantly advance our ability to monitor and manage energy. As one commentator recently put it, we are “moving from odometers to speedometers,” from an after-the-fact record of our energy use to real-time metering and intelligent response. The main finding of the 2007 McKinsey report is that while energy demand will continue to grow, “there are sufficiently economically viable opportunities for energy-productivity improvements that could keep global energy-demand growth at less than 1% per annum – or less than half of the 2.2% average growth to 2020 anticipated in our base-case scenario.” This would cut global energy demand by the equivalent of 64 million barrels of oil per day, or almost 150 percent of today’s entire U.S. energy consumption.

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As McKinsey recognizes, we can gain energy-productivity improvements either from reducing the energy inputs required to produce the same level of energy, or from increasing the quality or quantity of economic outputs. The report concludes that globally the largest untapped potential for cost-effective energy productivity gains (>10% Internal Rate of Return) lies in the residential sector (e.g. better building shells and more efficient water heating and lighting), power generation sector (e.g. more efficient power plants and electricity distribution) and industrial sector (e.g. less energy-intensive oil refineries and steel plants). However, McKinsey also rightly recognizes that capturing this vast potential will require a significant policy push. The inefficiencies working against energy productivity include market- distorting subsidies, information gaps, and agency issues. Acknowledging that “the small share of energy costs for most businesses and consumers reduces end-use response to energy-price signals,” McKinsey recommends that “shifting global energy demand from its current rapid growth trajectory will require the removal of existing policy distortions; improving the transparency in the usage of energy; and the selective deployment of energy policies, such as standards.” As we consider this policy dimension, we also need to consider how to harness an important and encouraging new trend – the unprecedented flow of private capital into clean energy in the past few years from major banks, pension funds, insurance companies and venture capital firms. Much of this increasing investment in technologies and projects has been on the supply side involving key technologies like solar, wind, and biofuels. Less investment has found its way to commercializing or deploying energy efficiency technologies despite their cost-effectiveness and reliability. Aggressive federal policy can make a major difference in the deployment of energy efficiency by increasing the attractiveness of investment, from early stage venture capital investment in the development of high risk technology to the financing of large-scale projects. A new McKinsey study from February of this year makes clear the attractive economics and climate benefits of investments in energy efficiency. McKinsey concludes that additional investments of $170 billion annually for the next thirteen years would be sufficient to capture the energy productivity opportunity identified in the 2007 report – i.e. cutting projected global energy demand to 2020 by at least half. While this sounds daunting, according to McKinsey, these investments – made in the industrial, commercial, residential, and transportation sectors – would have an average annual internal rate of return (IRR) of 17% and would collectively generate annual energy savings ramping up to $900 billion by 2020. Importantly, McKinsey also concluded that these investments could deliver up to half of the abatement of global greenhouse gases required to cap the long-term concentration in the atmosphere to 450 to 550 parts per million. And according to McKinsey, we would also avoid investment in energy generation infrastructure that would otherwise be required to keep pace with accelerating demand. The International Energy Agency estimates that on average an additional $1 spent on more efficient electrical equipment, appliances, and buildings avoids more than $2 in investment in electricity supply. The report quotes Chevron CEO David O’Reilly who recently said that energy efficiency is the cheapest form of new energy we have. I should emphasize that by moderating demand growth through energy efficiency, and at the same time increasing clean generation using renewable sources, we can slow and begin to decrease carbon emissions while we work to adopt and implement a comprehensive approach to addressing climate change and our nation’s energy security. The Administration and Congress should pay careful attention to this complementary strategy involving both energy

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efficiency and renewable energy as an important down payment on reducing carbon emissions, while advancing the more complex agenda involved in enacting and implementing an economy-wide climate and energy security policies.

FEDERAL POLICIES TO INCREASE INVESTMENT IN ENERGY EFFICIENCY The federal government has the power to stimulate vastly more private sector investment in energy efficiency and thereby dramatically increase U.S. competitiveness, improve national security, and confront climate change. There is a broad range of federal policies that can increase investment in energy efficiency including standards, tax credits, R&D funding, procurement and financial support mechanisms. Below I outline a number of the most promising approaches.

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Automobile Fuel Efficiency – The Role for Plug-in Vehicles Since its adoption in 1975, the Corporate Average Fuel Economy requirement (CAFE) has cut U.S. oil consumption by over 1 billion barrels each year. Even with this progress, passenger vehicles today consume approximately 40% of the petroleum in the United States – with the transportation sector projected to generate 89% of the growth in petroleum demand through 2020. In late 2007, federal energy legislation requires that automakers boost fleetwide gas mileage to 35 mpg by the year 2020 for all passenger automobiles, including light trucks. This increase in CAFE standards is a definite step forward, but we can do even better. Existing technologies – hybrid electric automobiles, drive train improvements, lighter weight materials – can today get us to roughly double the mileage of our current passenger fleet. Perhaps the most exciting technological development has been the recent emergence of plugin hybrids – a technology that will enable us to exceed any fuel economy proposals under consideration at this time. Plug-in hybrids have a more powerful battery than traditional hybrids and are designed to be connected to the electric grid for recharging. This allows the vehicle to cut gasoline use and, if charged at night, use lower cost and cleaner off-peak electricity. These cars could also benefit electric utilities when plugged in during the day by sending power back to the grid to meet peak power needs, thereby supplanting some of the most costly and often most polluting power generation. According to some analysts, this benefit could be worth hundreds or even thousands of dollars per year per car, a value that could exceed the incremental cost of the vehicle’s more powerful battery. By increasing vehicle use of electricity over liquid fuels, we should have an easier time improving the environmental profile of our automotive fleet. In addition, plug-in hybrid vehicles enabled to run on biofuels can further reduce greenhouse gas emissions and oil consumption. The bottom line is that plug-in hybrids – and down the road all electric vehicles – have the potential to dramatically reduce America's oil dependence, improve our national security, and help fight global warming.

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Google.org’s RechargeIT initiative is working to accelerate the commercialization of plug-in vehicles and the widespread adoption of vehicle-to-grid (V2G) technology. We have created our own demonstration plug-in fleet at Google, involving converted Ford Escapes and Toyota Priuses, and made more than $1 million in grants to support the adoption of plug-ins. Last week we announced the initial round of several investments in companies whose innovative approach, team, and technologies will enable widespread commercialization of plug-ins. Our RechargeIT initiative recently conducted a driving experiment with plug-ins from our fleet to see how well they performed against standard cars. Using a variety of vehicles, professional drivers, and driving routes representing typical trips for U.S. drivers, we conducted a series of controlled tests over seven weeks. Our plug-ins achieved as much as 93 mpg on average for all trips and 115 mpg for city trips. See www.rechargeit.org for more details. Public policy will also play a crucial role in driving innovation and commercializing new plug-in technologies. In June we co-hosted a conference with the Brookings Institution to showcase plug-ins and explore the role that government can play in accelerating their commercialization. Members of Congress, auto and utility executives, and technology experts discussed the promise of plug-ins and the need for government leadership. We hope that discussions at the conference – along with a serious of policy papers we commissioned with Brookings that will be released later this year – will lead to specific and actionable policy solutions. At a minimum, we believe the following measures are needed: •

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•

•

• •

•

Funding for federal research and development - Federal R&D support is key to driving development of new technologies. We must further develop power management devices, grid integration technologies, and better batteries to increase the range and efficiency of plug-in vehicles. The federal government can play a critical role in helping to accelerate the necessary R&D efforts. Investment in infrastructure - Putting millions of plug-in cars and trucks on the road will require deployment of recharging stations and new power management hardware and software. The U.S. government should start investing in and incentivizing the infrastructure necessary to support this transformation. Financial incentives to spur adoption - Federal tax credits jump-started the mass market for hybrid technology. A comparable set of incentives for initial marketability of plug-in vehicles could similarly boost the momentum and mass market availability of plug-ins. Federal procurement - The federal government should procure large numbers of plug-in vehicles for the federal fleet and develop related charging infrastructure. Modernized regulatory system - Reform of current utility rate design in many states will permit real-time pricing of electric power, which will assist consumers in choosing to recharge during off-peak periods. Uniform data protocols - The U.S. government should foster national uniform data collection and publication protocols for electric vehicles and V2G, including miles per gallon, standards, tailpipe emissions and carbon reductions.

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Energy Efficiency Resource Standard (EERS) Congress should establish a mechanism called the Energy Efficiency Resource Standard (EERS) that would set efficiency resource targets for electricity and gas suppliers over a given period of time. It builds on policies now in place in nine states – California, Texas, Vermont, Connecticut, Nevada, Hawaii, Pennsylvania, Colorado, and most recently, Massachusetts – designed to cut the growth in electricity demand through energy efficiency. The Texas and Vermont policies have been implemented for several years and have been very successful. Texas utilities, for example, are required to meet 10% of their load growth needs through efficiency programs. Utilities are easily exceeding this target. Vermont created an energy efficiency utility that has helped the state in recent years meet more than two thirds of load growth (typically 1.5 to 2% per year) through energy efficiency and the state is on a path to avoid all load growth in the near future. Under the proposed federal EERS, suppliers would obtain energy savings from customer facilities and distributed generation installations in amounts equal to at least 0.75% of base year energy sales for electricity and 0.50% for natural gas. This requirement would be phased in over three years and would cumulate during the compliance period of 2008-2020. The requirement would apply to retail suppliers (local distribution utilities or competitive energy suppliers) who sell annually at least 800,000 megawatt hours of electricity or 1 billion cubic feet of natural gas. Eligible energy savings measures include efficiency improvements to new or existing customer facilities, distributed energy technologies including fuel cells and combined heat and power systems, and recycled energy from a variety of defined commercial and industrial energy applications. Savings are determined using evaluation protocols that can be defined by DOE, with state protocols available that the Department can build on. Suppliers may obtain and trade credits for energy savings under procedures to be defined by DOE. This will enable suppliers with energy savings beyond the requirements of the standard to sell them to suppliers unable to obtain sufficient savings from their customers within a given compliance period.

Integrated EERS and RPS The EERS is a compelling complement to a national Renewable Portfolio Standard. EERS moderates demand growth so that RPS targets can actually reduce fossil fuel consumption. The RPS provision the Senate supported in 2005 calls for 10% of U.S. electricity generation to be generated from non-hydro renewable energy sources in 2020. However, the Energy Information Administration forecasts electricity demand to grow more than 22% by 2020. So bringing down demand growth is crucial to reducing overall fossil energy consumption and carbon emissions. The EERS proposal, as analyzed by the American Council for an Energy Efficient Economy, would reduce 2020 peak electricity demand by about 10% or about 133,000 MW – equivalent to almost 450 power plants at 300 MW each. This would bring demand growth down to a level where a 10% RPS could meet all new electricity generation needs. ACEEE also estimates that by 2020, this provision will reduce natural gas needs by about 2 billion cubic feet, reduce CO2 emissions by more than 340 million metric tonnes, and result in cumulative net savings to electricity and natural gas

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consumers of about $29 billion. Moving to a 15% or 20% RPS level, as proposed in bills in 2007, would further accelerate the move to a less carbon-intensive electricity system. These two policies, EERS and RPS, figure prominently in a 2007 report that explores the synergies between energy efficiency and renewable energy. It was prepared by the American Council for an Energy Efficient Economy and the American Council on Renewable Energy and supported by the Rockefeller Brothers Fund. Calling energy efficiency and renewable energy the “twin pillars” of sustainable energy policy, the report emphasizes that both resources must be developed aggressively if we are to stabilize and reduce carbon dioxide emissions in our lifetimes. Energy efficiency and renewable energy offer a highly complementary approach to managing the challenges of the U.S. power sector in the coming decades. Efficiency is essential to slowing energy demand growth so that rising clean energy supplies can make deep cuts in fossil fuel use. If energy use grows too fast, renewable energy development will chase a receding target. Likewise, unless clean energy supplies are deployed rapidly, slowing demand growth will only begin to reduce total emissions; reducing the carbon content of energy sources is also needed. By moderating demand growth through an EERS and increasing clean generation through an RPS, we can slow and begin to decrease carbon emissions in the utility sector, while we work to adopt and implement a comprehensive cap-and-trade system. Policymakers should give strong consideration to this EERS-RPS approach as a straightforward down payment on reducing carbon emissions, while deliberating the more complex issues entailed in enacting and implementing an economy-wide climate policy.

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Appliance Efficiency Standards One of the nation’s least-heralded energy success stories involves federal appliance efficiency standards. In the last 15 years, Congress and the Department of Energy have set new standards for a number of products. Refrigerators sold since 2001 in the U.S. use just one-third the energy of comparable models sold in 1980. Home air conditioners are nearly twice as efficient as those sold in 1980. Standards in place today will save American families and businesses about $200 billion cumulatively by 2020, cutting electricity demand and carbon emissions substantially. The standards for the sixteen products in the Energy Policy Act of 2005 will save another $50 billion, and will cut carbon emissions by another 16 million tons in 2020. Unfortunately, DOE has issued only three new appliance efficiency standards in recent years. In the settlement of litigation brought by states and environmental groups, DOE agreed in 2006 to a schedule for issuing all 22 overdue standards by 2011. Congress should ensure that DOE has the funds to conduct the necessary analysis, that the Department stays on schedule, and that it adopts rigorous final standards. Indeed, recent standards are not models of great rigor: the standard for furnaces can be met by virtually all existing products on the market; the one for boilers rejected a tougher joint proposal by manufacturers and advocacy groups; and the one for distribution transformers rejected a significantly more stringent recommendation from the electric utility industry itself.

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Tax Credits for Efficient Buildings The Energy Policy Act of 2005 (EPACT) provided important tax incentives for efficient buildings and equipment, in addition to significant support for renewable energy and other advanced energy technologies. Most of the energy efficiency incentives, however, expired at the end of 2007. Legislation introduced by Senators Snowe and Feinstein, called the EXTEND Act (S. 822), would have extended and expanded these building-related incentives. These provisions, however, were not ultimately adopted in 2007 federal energy legislation. In February 2008, the House passed $18.1 billion in renewable energy tax incentives (H.R. 5351), including an extension of the tax credits for energy-efficient home improvements. The Senate has also taken up tax credit extensions. These tax credit packages, however, are still pending. Commercial buildings and large residential subdivisions have lead times for planning and construction of several years, so many businesses will refrain from making investments to qualify for tax incentives if the duration of the incentive is only two years. The EXTEND Act provides four years of assured incentives for most situations and some additional time for projects with particularly long lead times, such as commercial buildings. Significantly, the EXTEND Act also phases out incentives based on the cost incurred in saving or producing energy and replaces them with incentives based on the actual performance (measured by on-site ratings for whole buildings and factory ratings for products like air conditioners, furnaces, and water heaters.) The legislation provides a new home retrofit tax incentive for ambitious levels of energy savings that are verified by a third-party rater. The bill is intended to transition from the EPACT 2005 retrofit incentives, which are based partially on cost and partially on performance, to a new system that provides greater financial incentives based on performance. These larger incentives should not cost the Treasury more because the ambitious requirement of a minimum 20% savings will effectively eliminate free- ridership, which is the problem that caused the current EPACT incentives to be scored as high as they were. The Snowe-Feinstein bill also extends the applicability of the EPACT incentives so that the entire commercial and residential building sectors are covered. The current EPACT incentives for new homes are limited to owner-occupied properties or high rise buildings. The SnoweFeinstein bill extends these provisions to rental property and offers incentives whether the owner is an individual taxpayer or a corporation. This extension does not increase costs significantly, but it does provide greater fairness and clearer market signals to builders and equipment manufacturers. GDS Associates estimates that if the EXTEND Act had been adopted, the two-year EPACT incentives plus the additional EXTEND incentives, over the 2006-2020 timeframe, would have reduced U.S. natural gas use by about 4.65 trillion cubic feet (almost enough to serve California and New York for a year), decrease consumer energy bills by about $93 billion, and avoid 657 million metric tons of carbon dioxide (equivalent to 142 million passenger cars not being driven for one year). GDS also estimates that EXTEND would have reduced peak electric demand by about 15,500 megawatts by 2020 (equivalent to 52 power plants of 300 MW each).

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Low Income Home Weatherization Across the nation, poor families increasingly face the choice between heating and eating as prices for natural gas, heating oil, propane and electricity have risen and millions of Americans have found themselves spending more than one-quarter of their income to run their furnaces, air conditioners and keep the lights on. In a survey of low income families – before the energy price spike in 2005-2006 as well as more recent ones – 32% went without medical or dental care, 24% failed to make a rent or mortgage payment, and 22% went without food for at least one day due to energy bills. Congress continues to debate the traditional fix for this problem: additional funding for the Low Income Home Energy Assistance Program (LIHEAP). LIHEAP is essentially a oneshot buy- down of energy bills that covers a modest percentage of eligible families – an absolutely critical but in no way sufficient answer to our nation’s energy predicament. Together, federal and state fuel assistance funds provided less than 10% of the total energy costs for low income households in 2006 and even less today. A long-term answer for low-income families is home weatherization. By upgrading a home’s furnace, sealing leaky ducts, fixing windows, and adding insulation we can cut energy bills by 20-40% – and the substantial savings accrue with summer air conditioning as well as winter heating. And by adding energy efficient appliances and lighting the savings are even greater. Replacing a 1970’s refrigerator with a new energy efficient model will cut an average home electricity bill by 10-15%. Weatherizing low-income homes also improves comfort, reduces illness and creates jobs. Unfortunately, the benefits of low-income weatherization are not reflected in our national policies. There was about $245 million in the 2006 Department of Energy weatherization budget, enough for only about 100,000 U.S. homes. DOE proposed reductions in subsequent years and actually called for zeroing out weatherization in the 2009 budget. And while the nation has weatherized about 6 million low-income homes since 1976, more than 28 million remain eligible. Congress should make a national commitment to weatherize at least one million lowincome homes each year for the next decade. This approach would go a long way toward helping the most vulnerable among us. The price tag for retrofitting 10 million low-income homes is relatively modest – about $2 billion annually when fully implemented. With such a commitment there would be other benefits that directly address our current energy and environmental challenges. Stresses we are seeing today on the U.S. energy system – from blackouts to natural gas shortages – will be improved with every additional home weatherized. For example, weatherizing all the low-income homes that heat with natural gas would cut residential U.S. use of this fuel by about 5%, dampen its price volatility and reduce the call on federal fuel assistance funds. The advanced technologies pioneered in the federal low income weatherization program can also be readily applied to the U.S. housing stock at large – with even greater energy savings. One technology developed in the Department of Energy weatherization program uses a pressurization device and a simple infrared sensor to pinpoint leaks down to the size of a nail hole for about $100 per home. With this information insulation can be installed in the right places with the least amount of waste. As we cut energy demand we also cut air pollution. An Ohio study showed that weatherizing 12,000 homes not only cut the average consumer bill by several hundred dollars

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each year but also avoided annual emissions of 100,000 pounds of sulfur dioxide as well as 24,000 tons of carbon dioxide. As Congress considers changes to the Clean Air Act we ought to create an effective way to encourage investment in weatherization and other “downstream” pollution reduction opportunities. This could leverage substantial additional private sector capital for low- income weatherization and avoid the need for new power plants. For example, one approach would: • • • • • •

Aggregate thousands of homes eligible for weatherization in a locality; Establish a base-line of energy use as well as associated greenhouse gas and other emissions across the portfolio of homes; Install advanced metering to monitor post-investment savings as well as provide utility load control; Secure federal and state funding as well as carbon off-set, pollution credits, and utility capacity payments; Leverage private sector investment in the aggregated portfolio through a “shared savings” approach or other financial mechanism; and Benchmark the investment to enhance replication.

There may also be an opportunity to provide an extra incentive or credit in the Energy Efficiency Resource Standard for investment by an electricity or gas supplier in low income home weatherization.

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Federal R&D Funding Research and development is essential to supplying the "technology pipeline" we need to provide this Century's clean energy and energy independence solutions. Unfortunately, R&D on energy efficiency, as well as other energy technologies, has been falling and did not return to FY2002 levels until FY2008. Total federal spending remains far below the peak of investment that occurred in the 1970s. And the private sector has not yet picked up the slack; efficiency funding in the electricity and gas industries has fallen even faster than federal investment. Some states, like California, Iowa, Wisconsin, and New York, are trying to make a real difference, but their work is no substitute for federal support. Congress should ensure that adequate funds are appropriated to advance critical clean energy and energy independence R&D.

Government-Backed Financial Mechanisms There are a variety of government-backed financial mechanisms that could be of significant help in dramatically increasing the deployment of clean energy technologies, including energy efficiency. Senator Bingaman recently introduced S. 3233 which would increase the willingness of banks to make loans for clean energy projects by providing a secondary market for their loans through the 21st Century Energy Deployment Corporation. And in March Senator Domenici introduced S. 2730, the Clean Energy Investment Bank Act of 2008, creating a federal investment bank to make investments in eligible clean energy

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projects using a variety of tools including loans, loan guarantees, purchase of equity shares, and participation in royalties, earnings and profits. The bank builds from the loan guarantee program authorized by Congress in EPACT 2005, which DOE administers but has yet to back any loans. At a recent hearing before the Senate Committee on Energy and Natural Resources, I testified in support of Senate efforts to greatly increase the debt capital available for clean energy projects, particularly for early higher risk commercialization projects that often have trouble raising capital and frequently perish in what has come to be known as the “Valley of Death”. I urged Senators Bingaman and Domenici to integrate the best aspects of their two bills and thereby provide important mechanisms that will stimulate the massive private sector investment required to take clean energy technologies to scale. We also supported efforts in Senator Bingaman’s bill to develop debt instruments that aggregate smaller clean energy technology deployment projects. This could be particularly helpful to an array of energy efficiency projects which tend to be smaller but often share enough characteristics to be aggregated into larger financeable packages.

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State Building Codes California has demonstrated the significant efficiency gains that can be achieved through state building codes that are well designed and implemented. Title 24 of the California Code has been the national model, helping the state avoid thousands of megawatts of new generation capacity. Despite this impressive track record in California, many states have inadequate state building codes or none at all. Section 128 of the 2005 Energy Policy Act authorizes $25 million per year for FY2006FY2010 ($125 million total) for states that have adopted, and are implementing, both residential and commercial building energy-efficiency codes that meet or exceed specific standards. For states where there is no statewide code, the money will be allocated to local governments that have implemented codes that meet the above standards. Unfortunately, the funding authorized in the 2005 EPACT for state building codes was never appropriated by Congress and therefore this important incentive for adoption of state building codes has not been implemented. Congress should appropriate the funds authorized in the 2005 EPACT.

Utility Revenue Decoupling The National Action Plan for Energy Efficiency (http://www.epa.gov/cleanrgy/ actionplan/eeactionplan.htm) provides joint recommendations from federal agencies, states, the utility industry and environmental groups regarding energy efficiency. One area of focus in the report is the concept of “revenue decoupling”. This approach, first instituted in California and most recently ordered in Massachusetts, decouples sales from profits, so that electric and gas utilities do not have a disincentive to promote energy efficiency. The current “throughput” incentive (the more electricity or gas a utility sells, the more it earns) is a significant impediment to energy efficiency. As state utility commissions work to advance decoupling, Congress and the Administration (especially FERC and DOE) should consider further incentives to promote energy efficiency. One important federal role would be to

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promote “best practices” and provide technical assistance to interested parties to facilitate energy efficiency.

CONCLUSION

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The federal government has a significant role to play in increasing investment in energy efficiency. By adopting a set of policies similar to those outlined above, the federal government can stimulate significant near-term investment in energy efficiency with substantial reductions in energy use and major economic, environmental and security benefits. Thank you for the opportunity to testify today. I look forward to answering any questions to assist this Committee in its important examination of energy efficiency.

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Chapter 6

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OPENING STATEMENT OF SENATOR CHARLES E. SCHUMER, JOINT ECONOMIC COMMITTEE HEARING: “EFFICIENCY: THE HIDDEN SECRET TO SOLVING OUR ENERGY CRISIS, JULY 30, 2008 Good morning and thank you for coming to our Joint Economic Committee hearing on energy efficiency – which is what I call the hidden secret to solving this serious energy crisis Americans are facing. Everywhere we go – legion halls, parades, weddings – the high price of gasoline is one of the very first things people bring up. But in just a few short months, families from New York to Washington State will also be struggling to pay their winter heating bills. It is no wonder that Congress has held over 60 hearings on energy policy so far this year – and 20 in July alone. Americans from coast to coast are being squeezed. We had a hearing last week to examine the Middle Class Squeeze in more depth. Elizabeth Warren from Harvard told our committee that the average family is earning over a $1,000 less than they did in 2001 and they’re paying from $4,500-7,000 more in energy, health care, housing, college tuition, and child care costs. That’s bad news for families and for our country’s economic health, which is driven by the hard work of middle class families. Americans from coast to coast are being squeezed. Warren estimates that middle class families are paying over $2,000 more in gasoline costs alone -- DOUBLE what they spent in 2001. This is terrible news, in particular, for millions of families in the lower income brackets. Gasoline bills alone ate up 10 percent of their paychecks in 2006 – when a gallon of gas was “only” $2.50. For all of the talk about how American families have benefited from the Bush tax cuts, and for all of the emphasis that some of my colleagues are placing on making those tax cuts permanent, the simple, undeniable, you-can-look-it-up, no-spin truth is that the average American family is paying far more in higher gas prices this year than they received in Bush tax cuts. We had a committee hearing last month to examine whether these high oil prices were a temporary bubble or a painful, new reality for our economy. At that late June hearing, oil

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topped $134 a barrel -- it is now a paltry $122 a barrel. If there is no oil bubble, or if prices temporarily decline, as they have recently, and we put off doing the necessary things we have to do – like investing in efficiency programs and alternative fuels– we’ll be even further behind than we are now from breaking our foreign oil dependence. It is clear that demand for energy – oil, gas, electricity -- is on the rise – especially in rapidly developing, large countries like China and India. So the reality is that we need to look beyond quick fixes that will do little for consumers and do less to address this energy crisis. In the long-term, we must address the demand side of the energy equation. With 7 years under their belt, this White House has taken zero pro-active steps to reduce our dependence on foreign oil or push other serious energy efficiency programs. If it wasn’t for the Democratic Congress passing a long-overdue, small increase in fuel efficiency standards for cars, President Bush would leave the White House with a spotless record – committing no sins against Big Oil or OPEC. With almost 70 percent of all of the oil we consume going into our gas tanks, it is a crime that the White House and the Republican Congress since 1995 have opposed increasing fuel economy standards for so many years. While I have supported some targeted drilling in the Gulf of Mexico, I don’t believe that we can drill our way out of this energy crisis – neither do the American people. According to a recent poll, 76% of Americans said that we should focus on investing in new energy technologies, renewable fuels, and more efficient vehicles rather than expanding oil exploration and drilling. One good thing that came out of the oil shock in the 1970’s was the push for dramatic energy conservation. Why don’t we do more of it now? California made tremendous efforts under Governor Jerry Brown during that time to reduce consumption and now they are well below the national average in energy usage per capita. One environmentalist said, alternative fuels are the sizzle, but conservation and efficiency is the steak. But to some conservation has the connotation of discomfort – using an extra blanket in the winter or easing up on the air conditioning in the summer. But as our witnesses will discuss, energy efficiency is actually doing more with less. We’ll learn about the most recent state to implement landmark energy efficiency and alternative energy programs from the Massachusetts Secretary of Energy and Environmental Affairs, Ian Bowles. But what should we be doing in Washington to address this problem? We should be requiring utilities to achieve 10% energy savings each year by helping their customers with energy efficiency programs, improving energy efficiency in their own distribution systems, or through credit trading. We need to require states to update their commercial and residential buildings codes to achieve a 30% energy savings by 2015 and 50% energy savings by 2022, based on 2006 buildings code standards. That’s an idea that offers big bang for the buck because buildings consume a great deal of our energy and are very inefficient. Finally, we should be giving states like Massachusetts the ability to set higher appliance standards, with the proper approval from the Department of Energy, to help the federal government and big manufacturers stay ahead of the technology curve. Another idea that Dan Reicher addresses prominently in his testimony may be long overdue -- a reinvigorated and beefed up weatherization program to help millions of Americans consume less energy, stay warmer in the winter and cooler in the summer.

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Given the recent inability of the Senate to increase funding for the low income home energy assistance program (LIHEAP) and what is predicted to be a terrible winter heating season, I’m worried that families in New York and around the country will be choosing between heat and food or between heat and health care. This kind of common sense investment in reducing our energy consumption is an energy hat trick – it helps families who are making ends meet, improves our energy security, and strengthens our economy. The bottom line is that if you don’t encourage efficiency, if you don’t invest in alternative energy, and if you don’t tell the big oil companies they can no longer run energy policy in America, we will not succeed, plain and simple. Our witnesses today are experts in doing more with less – which is why they only will get five minutes to make their opening statements. Witnesses: Ian Bowles, Secretary of Energy and Environmental Affairs, Commonwealth of Massachusetts Dan Reicher, Director of Climate Change and Energy Initiatives, Google Dr. Jonathan Koomey, Professor, Stanford University

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Mark P. Mills, Co-Founder, Chairman ICx Technologies, Inc.

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Chapter 7

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TESTIMONY OF MARK P. MILLS, DIGITAL POWER CAPITAL (AN AFFILIATE OF WEXFORD CAPITAL LLC) AUTHOR, FORBES ENERGY INTELLIGENCE COLUMN, CO-AUTHOR, THE BOTTOMLESS WELL (BASIC BOOKS, 2005), BEFORE THE U.S. CONGRESS JOINT ECONOMIC COMMITTEE, HEARING ON “EFFICIENCY: THE HIDDEN SECRET TO SOLVING OUR ENERGY CRISIS”, JULY 30, 2008 Thank you Mr. Chairman and members of the Committee for the opportunity to present some thoughts on the role of energy efficiency in the U.S. economy. In one way or another, I’ve been involved in and studied the technologies of energy production and use for several decades. And in recent years, specifically in the pursuit of energy tech venture capital opportunities, I’ve had the privilege to talk with hundreds of entrepreneurs and companies involved in developing advanced energy technologies, and visited with dozens and dozens of them. This experience has made me quite optimistic about our long-term capability to meet the nation’s energy needs – notwithstanding the caveat that there are substantial challenges in the near term. The solutions to energy-related geopolitical, economic and environmental challenges are not going to be found in anything new in basic physics. The primary energy sources we have today are those we’ll need to use for quite a long time – hydrocarbons, carbohydrates, sun, wind, water and uranium. Nonetheless, history will record that we are today on the cusp of an energy revolution – one involving efficiency -- with implications as deep and far-reaching as the industrial and electric revolutions of the previous two centuries. Each of those previous pivots in history was similarly anchored in profound changes in the efficiency with which we could use basic energy resources. The emerging efficiency revolution directly derives from our nation’s collective investment of trillions of dollars in the intellectual capital and infrastructure of the silicon and digital economy. It is not a single device, or solution, but the emergence of an entirely new

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structural approach to energy efficiency – a hybrid energy economy. The nature and implications of this technological paradigm shift are epitomized by the hybrid-electric car. Conventional cars waste gasoline in stop-and-go, coasting, running unnecessarily at stops and generally operating an engine sub optimally. You could do manually much of what hybrids do automatically, though it would be annoying. Just turn the engine off every time you don’t need it, at every stop, when braking, coasting, etc. Restart to accelerate or cruise. That alone increases a vehicle’s urban fuel economy 10 to 50%. Or hybridize; wrap engine and driveshaft with sensors, power electronics, electric motors, batteries, microprocessors, software and highspeed communications buses – in short, all the stuff of the digital economy. Then let all that digital stuff seamlessly and invisibly juggle the on-off and optimally operate the constellation of energy consuming components, in real-time reacting to dynamic conditions, in ways you could never accomplish manually. Nearly everything in our economy operates like today’s cars – sub optimally. Building and running things in the physical world is difficult to do optimally. Compromises are always made to accommodate enormously varied conditions – compromises that have the collective impact of consuming more resources. The engineering challenge is to use just the right resources (largely energy, or the energy inherent in materials) at the right time and place. Cars are much simpler to fix in this regard than are factories, offices, and homes. Yet the latter, collectively, is where 70 percent of our energy is used – sub optimally. Cost-effective hybrid energy technologies now emerging have potential for energy efficiency gains greater than anything in the transportation sector. Enabling the emergence of the hybrid economy are the four inter-related domains of the silicon-digital economy: sensors, increasingly from nanotechnology, to collect information; high-speed communications networks; powerful microprocessors to crunch data; and highpower electronics to interface with the physical-mechanical world. It is only in recent years that all of these domains have achieved the necessary cost-effective capabilities to be deployed in the physical world. Sensors with astonishing sensitivity can be the size of dust motes and imbedded along with low-cost self-healing wireless mesh networks that enable microprocessors, costing literally pennies, to instruct high-power transistors to mediate the kilowatts required to move, form, shape and control physical things. This is what hybrid cars already use to achieve huge efficiency gains. It’s what the rest of the economy can now do. The technologies enabling a hybrid energy economy arrived first to serve markets for pure information systems, for data, voice and video. These came first, to put it simplistically, because information doesn’t weigh anything, so the sheer power demands are relatively modest – pure information devices operate in milliwatts and watts. But you need kilowatts and megawatts to directly control steel, grain or people – to move tons of stuff instead of terabytes of pictures. Moving up the engineering power curve a thousand and million fold was difficult, and took time. It also took time to develop ultra-reliable software. A dropped call, or frozen PC screen is one thing – its equivalent in a factory, car, home, or hospital is quite another. The hybrid economy takes America the next quantum leap beyond automation (already a $100 billion global industry), or supply chain information technology and such things as telecommuting and e-commerce. All are already responsible for energy-savings, but all are only building blocks to the deeper hybrid phenomenon -- the emergence of a capability to imbue the energy-consuming inanimate world around us with intelligence, communications and the ability to react and operate optimally. To simplify again with the car analogy; the

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automatic transmission which has been around since 1939 is a distant cousin of the innovations that make a 2008 hybrid car. A March 1956 Time magazine cover story touted, prophetically, the benefits of automation as the engine of growth. And it was for a half century. Overall U.S. energy efficiency has more than doubled since then, and our GDP increased six-fold – requiring a comparatively modest 2.5-fold increase in energy use. Now it’s time for the hybrid economy to do the same, and much more. Only a few years ago, the hybrid car was viewed as an expensive niche product. But it’s already moving to the mainstream with the intersection of high energy prices and the (predictably) declining costs of silicon technology. So too the hybrid economy. Make all cars hybrid, and millions of barrels of oil are saved. Hybridize the rest of the economy -- eventually everything physical that consumes energy to build or operate -- and billions of barrels are saved. The conventional wisdom is that the big gains in energy efficiency are behind us, the so-called “low hanging fruit.” But technology also grows in cycles. We have yet to see the new crop. Radical improvements in energy efficiency produce unexpected, beneficial outcomes. Energy efficiency is what made companies like Google and Apple possible. Operating at the efficiency of the first computers, a single Google data center would consume the entire electric supply of New York City. At the efficiency of early radios, iPhones would be trunksized and served by cell towers the size of the Washington Monument. Instead today, because of staggering improvements in computing and information energy efficiency, there are thousands of data centers, billions of computers and cell phones -- both are now ubiquitous industries with vast, productive sprawling infrastructures. And while both have become major energy–consuming sectors in themselves –collectively using more energy than the aviation sector –- the new digital technologies are, according to the Federal Reserve, responsible for one-third to one- half of GDP growth. They have thus added not only more services, features and wealth to the economy, but have done so at a fraction of the energy cost per dollar of GDP compared to the old economy. There is every reason to believe more of the same is in store with the next wave of efficient technologies emerging in a hybrid economy, but much of it inherently unpredictable in direction and form. As with the hybrid car, the array of technologies – not to mention the constellation of players from large to small, traditional to start-up -- is broad enough to defy easy approaches to finding winners. The challenge, in fact, is the same for policymakers and investors. If there’s a risk today in responding to immediate economic stresses of high energy prices, it is in the temptation to pick specific winners or paths, and to confuse true technology-based efficiency (with its deep, long-lasting benefits) from behaviorally-based conservation (which is largely evanescent). Because efficiency – like its economic cousin, labor productivity -- arises primarily from technology progress, we face the now age-old challenge of finding ways to incentivize and accelerate innovative technology. How do we encourage markets to adopt near-term innovation, and find ways to invest in enabling infrastructure of long-term innovation? In both cases, money is the most powerful tool. High-cost energy accelerates near-term capital investment in more efficient technology. As for the long term, federal funding of basic R&D is essential to fuel the next cycle of innovation and to educate emerging innovators. The future hybrid economy will be as different from today as the electric economy was from the industrial revolution that preceded it. But just as the 21st century hybrid car is built

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directly from the 20th century’s automobile, so too the hybrid energy economy derives from the old. And while the challenges are global, it is clear at least from my travels that the United States will continue to be at the epicenter of this next great secular shift in energy technology.

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Thank you Mr. Chairman, members of the committee.

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INDEX

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A abatement, 123 academic, 88 access, 21, 22, 50, 63, 67 accidents, 9 accountability, vii, 17, 72, 84, 85, 86 accounting, 109 accuracy, 16, 49, 64, 65, 66 adjustment, 12, 13 administration, 85 administrative, 14 advertising, 20, 50, 67 advocacy, 92, 127 age, 139 agent, 106, 110, 113 aggressiveness, 107 aid, vii, 71, 112 AIP, 117 air, vii, 7, 13, 14, 68, 71, 76, 78, 80, 93, 110, 122, 127, 128, 129, 134 air pollutants, 7 air pollution, 110, 129 allies, 111 alternative, 63, 68, 103, 105, 113, 134, 135 alternative energy, 105, 134, 135 alternatives, 114 amendments, 16, 68, 74, 77 analysts, 103, 120, 124 appendix, 23, 75, 88, 89, 92 application, 2 appropriations, 12 assessment, 21, 109, 119 assumptions, 48, 66, 107, 108 AT&T, 120 atmosphere, 123 atoms, 111, 112

attractiveness, 123 auditing, 17, 50, 68, 75, 92 authority, 3, 7, 9, 10, 11, 13, 14, 16, 18, 19, 21, 22, 64 automakers, 1, 2, 6, 124 automation, 138 automobiles, 3, 7, 11, 14, 109, 113, 124 availability, 18, 22, 64, 125 aviation, 139 awareness, 20, 21

B banks, 123, 130 barriers, 110, 116, 117 base case, 107, 108, 109 base year, 126 batteries, 125, 138 battery, 124 beer, 122 beneficial effect, 2, 3, 9 benefits, 7, 9, 86, 113, 114, 122, 123, 129, 132, 139 biodiesel, 121 biofuels, 123, 124 biomass, 121 blackouts, 129 blame, 87 boilers, 68, 73, 76, 78, 127 bottlenecks, vii, 71, 76, 85 Btus, 80 bubble, 133 building blocks, 138 buildings, 88, 89, 107, 110, 123, 128, 134 bulbs, 68 burn, 10 buses, 10, 138 business model, 111, 112

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Index

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C Canada, 75, 92 capacity, 130, 131 carbohydrates, 137 carbon, 9, 10, 14, 81, 105, 110, 114, 115, 118, 120, 123, 125, 126, 127, 128, 130 carbon dioxide, 9, 10, 74, 81, 127, 128, 130 carbon emissions, 10, 105, 114, 115, 123, 126, 127 cargo, 8 case study, 114 category d, 84 causality, 87 CEA, 15, 48, 49, 50, 66, 67 CEC, 15, 48, 49, 50, 66, 67, 68, 118 CEE, 15, 48, 49, 50, 66, 67, 68 cell, 139 cell phones, 139 Census, 49, 66 CEO, 123 certification, 78, 80, 89, 90, 93, 94 Chevron, 123 Chief of Staff, 121 China, 134 Chrysler, 11 classes, 3, 5, 7 Clean Air Act, 2, 3, 7, 10, 11, 14, 16, 130 clean energy, 115, 121, 123, 127, 130, 131 climate change, 10, 11, 103, 104, 110, 121, 123, 124 Clinton Administration, 121 Co, 121, 135, 137 CO2, 6, 9, 10, 118, 126 codes, 88, 89, 90, 91, 131, 134 cognitive, 106 collaboration, 106 Colorado, 116, 126 Columbia, 7, 9, 11, 111 commercialization, 125, 131 community, 88, 109 competitive advantage, 6, 82 competitiveness, 124 complement, 126 complexity, 83, 85, 87 compliance, 1, 2, 3, 5, 6, 11, 13, 17, 22, 49, 64, 67, 69, 74, 82, 88, 91, 126 components, 76, 85, 88, 138 computing, 112, 139 concentration, 123 conditioning, 13, 129, 134 conflict, 106 Congress, vii, 4, 11, 12, 13, 14, 20, 21, 65, 68, 71, 72, 73, 74, 77, 81, 82, 83, 88, 89, 92, 101, 103,

112, 123, 125, 126, 127, 129, 130, 131, 133, 134, 137 Congressional Budget Office, 13 Connecticut, 126 connectivity, 122 consensus, 75, 85, 88, 92 conservation, 100, 101, 122, 134, 139 constraints, 107 construction, 88, 103, 128 consumer choice, 12 consumer electronics, 48, 49, 50, 66, 67, 69 consumers, 6, 7, 10, 12, 16, 17, 18, 19, 20, 21, 22, 49, 63, 64, 65, 66, 68, 69, 74, 75, 76, 77, 82, 86, 105, 106, 110, 111, 122, 123, 125, 127, 134 consumption, 2, 3, 7, 10, 12, 13, 16, 17, 18, 19, 20, 21, 22, 48, 49, 65, 66, 73, 75, 76, 81, 103, 121, 122, 124, 126, 134, 135 contractors, 74, 86 control, 16, 22, 84, 130, 138 Corporate Average Fuel Economy (CAFE), 1, 2, 12, 13, 118, 124 cost-benefit analysis, 9, 110 cost-effective, 10, 103, 107, 112, 113, 123, 138 costs, 7, 9, 11, 12, 16, 19, 21, 22, 49, 64, 67, 69, 74, 76, 77, 80, 81, 82, 104, 105, 106, 107, 108, 109, 110, 112, 113, 123, 128, 129, 133, 139 Court of Appeals, 2, 3, 7, 9, 11, 14 credit, 6, 128, 130, 134 crime, 134 critical thinking, 120 critical thinking skills, 120 criticism, 9 crude oil, 3, 103, 107, 109 customers, 112, 126, 134 cycles, 139

D danger, 122 data collection, 125 database, 112 debt, 121, 131 decision makers, 85 decisions, 21, 79, 82, 112 decoupling, 111, 113, 131 Delphi, 75, 87, 92, 95 demand, 6, 11, 111, 119, 122, 123, 124, 126, 127, 128, 129, 134 denial, 1, 2 density, 112 Department of Energy (DOE), 15, 16, 48, 51, 66, 72, 73, 87, 88, 97, 101, 104, 105, 106, 113, 118, 119, 120, 121, 127, 129, 134

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Index Department of Transportation (DOT), 4, 5, 8, 12, 13, 14, 73, 86, 92 designers, 88 developed nations, 110 digital technologies, 139 discomfort, 134 dissatisfaction, 81 distortions, 123 distributed generation, 126 distribution, vii, 71, 72, 76, 81, 101, 123, 126, 127, 134 District of Columbia, 7, 9, 11, 111 diversity, 5, 49, 67 doors, 68 draft, 12, 22, 68, 77, 83, 84, 87 DSM, 118, 119 DuPont, 117 duration, 128 dust, 138

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E earnings, 131 eating, 129 e-commerce, 138 economic activity, 103, 104 economic development, 121 economic efficiency, 6 economic theory, 106, 107 economic welfare, 122 economics, 105, 106, 108, 109, 114, 120, 123 economies of scale, 82 electric power, 125 electric utilities, 109, 124 electrical power, 88 electricity, 69, 80, 81, 101, 107, 108, 110, 111, 113, 121, 122, 123, 124, 126, 127, 129, 130, 131, 134 electricity system, 121, 127 electrons, 111 embargo, 3 emission, 6 employment, 6 empowered, 11 energy, vii, 12, 16, 17, 18, 19, 20, 21, 22, 48, 49, 50, 63, 64, 65, 66, 67, 68, 69, 71, 72, 73, 74, 75, 76, 77, 79, 80, 81, 82, 83, 86, 87, 88, 89, 90, 91, 92, 100, 101, 103, 104, 105, 106, 107, 109, 110, 111, 112, 113, 114, 116, 117, 118, 119, 120, 121, 122, 123, 124, 126, 127, 128, 129, 130, 131, 132, 133, 134, 135, 137, 138, 139, 140 energy characteristics, 64 energy consumption, 16, 17, 18, 19, 20, 21, 22, 48, 49, 65, 66, 73, 75, 76, 81, 122, 126, 135

energy efficiency, vii, 17, 18, 19, 20, 21, 22, 48, 49, 50, 63, 66, 67, 68, 71, 72, 73, 74, 75, 76, 77, 79, 81, 82, 83, 86, 87, 88, 89, 90, 91, 92, 100, 101, 103, 104, 106, 107, 109, 110, 112, 113, 117, 120, 121, 122, 123, 124, 126, 127, 128, 130, 131, 132, 133, 134, 137, 138, 139 Energy Efficiency and Renewable Energy, 121 Energy Information Administration, 15, 17, 48, 66, 103, 107, 109, 118, 126 Energy Policy Act, 12, 16, 68, 69, 73, 74, 92, 101, 127, 128, 131 Energy Policy Act of 2005, 12, 68, 69, 73, 74, 92, 101, 127, 128 Energy Policy and Conservation Act, 3, 7, 15, 16, 65, 73 energy supply, 105 entrepreneurs, 137 environment, 18, 21, 22, 82, 104, 114 Environmental Protection Agency, 1, 2, 7, 8, 10, 11, 13, 15, 16, 17, 19, 20, 21, 22, 48, 49, 50, 54, 65, 66, 67, 69, 95, 100, 106, 119, 120 equity, 121, 131 ethanol, 121 European Union (EU), 114 Executive Order, 83 expenditures, 12 expert, 72, 75, 83, 85, 92 expertise, 65, 92 externalities, 7, 120

F fairness, 128 family, 133 Federal Energy Regulatory Commission (FERC), 113, 131 federal government, 16, 22, 112, 113, 124, 125, 132, 134 federal law, 101 Federal Register, 13, 14, 81, 84, 89, 90, 101 Federal Reserve, 139 Federal Trade Commission (FTC), 15, 16, 17, 18, 19, 21, 22, 48, 49, 50, 57, 63, 64, 65, 66, 67, 68, 69 feet, 126, 128 financial support, 124 financing, 121, 123 firms, 116, 123 flow, 81, 101, 123 fluorescent lamps, 73, 78, 80, 93, 94 fluorescent light, 68 fluorinated, 14 focusing, 113 food, 129, 135

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Index

Ford, 117, 125 forecasting, 105 fossil, 103, 126, 127 fossil fuel, 103, 126, 127 France, 117 fuel, 1, 2, 3, 4, 6, 7, 8, 9, 10, 11, 12, 13, 14, 103, 110, 124, 126, 127, 129, 134, 138, 139 fuel cell, 126 fuel efficiency, 1, 2, 12, 134 funding, 76, 113, 124, 129, 130, 131, 135, 139 funds, 123, 127, 129, 130, 131 furnaces, vii, 68, 71, 73, 75, 78, 79, 93, 94, 127, 128, 129 futures, 105, 115

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G gas, 7, 10, 11, 14, 80, 110, 122, 124, 126, 128, 129, 130, 131, 133, 134 gasoline, 4, 6, 7, 107, 110, 119, 124, 133, 138 GDP, 103, 139 GE, 96 general fund, 1, 2 generation, 122, 123, 124, 126, 127, 131 Georgia, 91 geothermal, 68 glasses, 106 global climate change, 120 global economy, 122 global warming, 73, 124 Global Warming, 115 goals, 1, 2, 16, 22, 64, 87, 110 goods and services, 104 government, 16, 17, 22, 50, 68, 75, 85, 92, 101, 104, 106, 110, 112, 113, 124, 125, 130, 131, 132, 134 Government Accountability Office (GAO), vii, 15, 19, 20, 50, 63, 64, 67, 68, 69, 71, 72, 75, 78, 79, 80, 90, 94, 101 graduate students, 101 grain, 138 grants, 1, 2, 125 graph, 6 greenhouse, 2, 3, 6, 7, 9, 10, 11, 14, 105, 107, 109, 114, 115, 118, 123, 124, 130 greenhouse gas (GHG), 2, 3, 6, 7, 9, 10, 11, 105, 107, 109, 123, 124, 130 greenhouse gases, 7, 10, 11, 109, 123 groups, 92, 127, 131 growth, 21, 122, 123, 124, 126, 127, 139 guidance, 48, 49, 66, 67, 84 guidelines, 88 Gulf of Mexico, 134

H hanging, 122, 139 harm, 81 Harvard, 119, 120, 133 Hawaii, 126 healing, 138 health, 121, 133, 135 health care, 133, 135 hearing, 88, 103, 104, 119, 131, 133 heat, vii, 68, 71, 76, 78, 80, 93, 115, 122, 126, 129, 135 heat pumps, vii, 68, 71, 78, 80, 93 heating, 76, 78, 80, 84, 93, 123, 129, 133, 135 heating oil, 129 high risk, 123 high-speed, 138 Honda, 120 horizon, 107, 108 hospital, 138 hot water, 73, 76 House, 73, 117, 128, 134 household, 16, 17, 18, 19, 20, 21, 22, 48, 49, 65, 66, 67, 68, 75 households, 16, 69, 81, 129 housing, 129, 133 human, 111 hybrid, 122, 124, 125, 138, 139 hybrids, 124, 138 hydro, 126, 137 hydrocarbons, 137

I id, 77 identification, 113 IEA, 117 implementation, 69, 104, 105, 110, 113, 114 imports, 4, 7, 103 incandescent, 78, 80, 93, 94 incentive, 111, 128, 130, 131 incentives, 101, 104, 106, 110, 111, 112, 113, 125, 128, 131 income, 129, 130, 133, 135 increased workload, 86 increasing returns, 106, 111 independence, 130 India, 134 industrial, vii, 69, 71, 72, 73, 74, 75, 77, 78, 79, 80, 81, 87, 92, 93, 94, 123, 126, 137, 139 industrial revolution, 139

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Index industry, 5, 6, 12, 48, 49, 50, 66, 67, 75, 82, 106, 113, 115, 127, 131, 138 inefficiency, 3 inflation, 103 Information and Communication Technologies, 119 information systems, 138 information technology, 138 infrared, 129 infrastructure, 112, 123, 125, 137, 139 injection, 4 innovation, 103, 104, 108, 111, 112, 113, 115, 125, 139 insight, 113 inspection, 64 inspections, 18, 20, 22, 49, 64, 67 Inspector General, 69 institutional innovations, 111, 113 institutions, 106, 111 instruments, 131 insulation, 68, 129 insurance, 123 insurance companies, 123 integration, 125 integrity, 69 intellectual capital, 137 intelligence, 138 interest groups, 92 interface, 138 Intergovernmental Panel on Climate Change, 103 internal controls, 19, 49, 64, 66 internal rate of return, 123 International Energy Agency, 117, 123 Internet, 122 interviews, vii, 71, 88, 92 investment, 82, 114, 119, 123, 124, 130, 131, 132, 135, 137, 139 investment bank, 130 investors, 111, 139 IRR, 123

J Japanese, 3 jobs, 5, 6, 129 judge, 91 jurisdictions, 88 justification, 8, 81, 85

K kindergarten, 113

L labeling, 16, 18, 21, 100, 106, 113 labor, 139 labor productivity, 139 language, 2, 3, 12, 65 laptop, 101 large-scale, 123 law, 1, 2, 10, 16, 18, 19, 63, 65, 77, 101 laws, 11, 49, 66 lead, 6, 12, 13, 81, 84, 125, 128 leadership, 120, 125 leaks, 129 legislation, 12, 17, 48, 66, 111, 124, 128 legislative, 49, 50, 66, 67 lifetime, 7, 12 light trucks, 1, 2, 3, 4, 6, 7, 8, 9, 10, 124 likelihood, 10, 82, 87 limitations, 64 links, 19 liquid fuels, 124 litigation, 127 loan guarantees, 131 loans, 130 local government, 131 location, 18 London, 118 long-term, 20, 123, 129, 134, 137, 139 Low Income Home Energy Assistance Program (LIHEAP), 129, 135 lower prices, 74 low-income, 129

M mainstream, 139 management, vii, 16, 69, 71, 72, 76, 77, 82, 83, 84, 85, 86, 87, 112, 119, 122, 125 management practices, 76, 77, 85, 86, 87 mandates, 10, 104 manufacturer, 5, 8, 9, 18, 21, 76, 82 manufacturing, 74, 82 market, 19, 21, 22, 73, 106, 107, 111, 123, 125, 127, 128, 130 market share, 111 marketability, 125 marketing, 111, 114 markets, 103, 104, 107, 120, 138, 139 Massachusetts, 7, 11, 91, 96, 126, 131, 134, 135 measures, 6, 64, 122, 125, 126 media, 120 megawatt, 81, 126

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Index

megawatt hours, 126 mesh networks, 138 metric, 110, 126, 128 metropolitan area, 49, 67 microprocessors, 138 microwave, 18 middle class, 133 Ministry of Environment, 105 missions, 6, 9, 10, 126, 127 mobile phone, 101 models, 5, 16, 20, 74, 106, 127 moderates, 126 momentum, 125 money, 12, 106, 109, 111, 113, 119, 131, 139 moratorium, 82 morning, 133 mortgage, 129 motors, 73, 76, 78, 80, 93, 94, 138

Copyright © 2008. Nova Science Publishers, Incorporated. All rights reserved.

N nanotechnology, 138 nation, 76, 79, 80, 86, 129 national, 11, 48, 49, 50, 66, 67, 68, 73, 78, 80, 84, 92, 93, 94, 112, 124, 125, 126, 129, 131, 134 National Academy of Sciences (NAS), 8, 12 National Highway Traffic Safety Administration (NHTSA), 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 12, 13, 14 National Institute of Standards and Technology, 92 National Research Council, 13, 118, 120 National Science Foundation, 113 national security, 124 natural, 80, 110, 126, 128, 129 natural gas, 80, 110, 126, 128, 129 NBC, 120 network, 112 Nevada, 126 New England, 105, 115 New York, 9, 15, 48, 66, 81, 96, 101, 118, 119, 120, 128, 130, 133, 135, 139 New York Times, 119, 120 nongovernmental, 74, 75, 77 normal, 18, 20 Northeast, 95 nuclei, 111 nucleus, 112

O obligations, 64, 72 observations, 22, 85 obsolete, 82

Office of Management and Budget, 85 Office of Personnel Management, 101 offshore, 103 offshore oil, 103 Ohio, 129 oil, 3, 4, 6, 7, 103, 104, 105, 107, 109, 110, 122, 123, 124, 129, 133, 134, 135, 139 oil refineries, 123 omnibus, 12 OPEC, 134 opposition, 5, 82 optimization, 122 Oregon, 97 organizations, 9, 49, 66, 75, 88, 121 ownership, 12, 101, 119

P Pacific, 73, 88, 92, 95, 96, 105 paradigm shift, 138 paradox, 106, 116 Paris, 117 passenger, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 13, 14, 124, 128 PCA, 3, 7, 65, 73 penalties, 1, 2, 3 penalty, 3 Pennsylvania, 126 pension, 123 per capita, 134 performance, 9, 12, 16, 22, 50, 67, 85, 86, 119, 120, 128 periodic, 22, 64 permit, 125 petroleum, 12, 13, 124 physical world, 138 physics, 137 planning, 79, 82, 111, 128 plants, 123 plasma, 19 play, 10, 125, 132 plug-in, 121, 124, 125 policy choice, 104 policy instruments, 106 policymakers, 120, 139 political leaders, 103 pollutant, 10, 11 pollution, 105, 106, 110, 120, 129, 130 poor, 83, 86, 129 poor performance, 86 portfolio, 113, 130 potential energy, 83 poverty, 121

Energy Efficiency Solutions, edited by Richard P. Cateland, Nova Science Publishers, Incorporated, 2008. ProQuest Ebook Central,

147

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Index power, 19, 65, 68, 74, 76, 81, 88, 101, 103, 111, 112, 115, 120, 121, 123, 124, 125, 126, 127, 128, 130, 138 power generation, 123, 124 power plant, 81, 103, 121, 123, 126, 128, 130 power plants, 81, 103, 123, 126, 128, 130 prediction, 109 President Bush, 134 pressure, 86, 111 price signals, 110, 123 prices, 4, 6, 16, 103, 109, 110, 111, 129, 133, 139 pricing policies, 110 priorities, 19 private, 121, 123, 124, 130, 131 private sector, 121, 124, 130, 131 private sector investment, 124, 130, 131 probability, 103 producers, 9, 111 production, 103, 109, 111, 137 productive efficiency, 111 productivity, vii, 72, 76, 86, 122, 123, 139 profit, 111, 113 profitability, 113 profits, 111, 113, 131 program, vii, 1, 2, 4, 5, 6, 9, 10, 11, 16, 17, 18, 19, 20, 21, 22, 48, 49, 50, 64, 65, 66, 67, 68, 69, 71, 72, 74, 76, 82, 83, 85, 86, 87, 88, 89, 90, 92, 100, 101, 105, 109, 111, 120, 129, 131, 134, 135 promote, 9, 112, 113, 115, 117, 120, 131 propane, 129 property, 128 protection, 9 protocols, 125, 126 public, 9, 74, 84, 85, 88, 117, 120 public interest, 9 pumps, vii, 68, 71, 78, 80, 93

Q quantum, 138

R R&D, 113, 124, 125, 130, 139 radio, 113, 120 range, 75, 124, 125 ratings, 128 reality, 133, 134 recall, 64 reduction, 2, 3, 4, 7, 9, 10, 12, 103, 111, 130 regional, 49, 67 regulation, 8, 9, 10, 14, 68, 101

regulations, 6, 10, 11, 17, 48, 65, 68, 75 regulatory requirements, 49, 50, 66, 67 rejection, 11 reliability, 49, 64, 66, 123 renewable energy, 121, 122, 124, 126, 127, 128 rent, 129 replication, 130 Republican, 134 research, 1, 2, 107, 110, 111, 112, 113, 114, 119, 125 research and development, 1, 2, 15, 48, 66, 96, 110, 112, 113, 119, 125 residential, 48, 66, 68, 69, 88, 89, 90, 91, 108, 112, 123, 128, 129, 131, 134 residential buildings, 88, 89, 91, 134 resolution, 11, 18, 21, 65, 84 resources, vii, 19, 21, 71, 72, 74, 76, 83, 84, 85, 86, 87, 91, 92, 103, 104, 127, 137, 138 responsibilities, 22, 86, 92, 101 retail, 16, 17, 18, 20, 21, 22, 49, 63, 64, 67, 126 returns, 108, 111, 112 returns to scale, 112 revenue, 110, 113, 131 RFID, 113 risk, 106, 112, 123, 131, 139 risk aversion, 106 risks, 82, 85, 110, 112 royalties, 131

S safety, 12 sales, 3, 20, 21, 111, 113, 126, 131 sample, 49, 67, 69 savings, vii, 10, 12, 16, 19, 20, 22, 64, 69, 71, 73, 74, 75, 76, 77, 79, 80, 81, 83, 92, 104, 107, 108, 109, 111, 122, 123, 126, 128, 129, 130, 134, 138 scalability, 112 scientists, 120 search, 3 secret, 103, 118, 133 secular, 140 security, 6, 114, 121, 123, 124, 132, 135 Senate, 12, 15, 23, 110, 119, 126, 128, 131, 135 sensitivity, 138 Sensitivity Analysis, 115 sensors, 112, 138 series, 22, 92, 125 services, 104, 105, 111, 139 shape, 138 shares, 131 shipping, 18 shock, 134 short-term, 6

Energy Efficiency Solutions, edited by Richard P. Cateland, Nova Science Publishers, Incorporated, 2008. ProQuest Ebook Central,

Copyright © 2008. Nova Science Publishers, Incorporated. All rights reserved.

148

Index

signals, 110, 123, 128 signs, 68 silicon, 137, 138, 139 sites, 16, 17, 18, 20, 21, 22, 50, 63, 64, 67 skills, 120 software, 122, 125, 138 solar, 123 solutions, 76, 92, 125, 130, 137 sounds, 123 specificity, 83 speed, 13, 138 speed limit, 13 spin, 133 Sputnik, 112, 120 stabilize, 127 staffing, 85, 86 stages, 8, 83, 85 stakeholder, 82, 83, 85 stakeholders, vii, 71, 74, 75, 84, 85, 86, 87, 92 standardization, 112 standards, vii, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 16, 17, 19, 22, 49, 50, 64, 66, 67, 68, 69, 71, 72, 73, 74, 75, 76, 77, 79, 80, 81, 82, 83, 85, 86, 87, 92, 94, 95, 100, 101, 106, 110, 113, 116, 118, 120, 123, 124, 125, 127, 131, 134 state laws, 11 statutes, 75, 77 statutory, vii, 9, 19, 21, 71, 74, 75, 77, 82, 83, 84, 89, 92 statutory obligation, 75, 92 steel, 123, 138 stock, 107, 111, 121, 129 storage, 76, 78 strategic, 120 strategies, 10, 85 students, 101 subsidies, 123 sulfur, 130 sulfur dioxide, 130 summaries, 110 summer, 129, 134 suppliers, 126 supply, 6, 103, 110, 113, 120, 123, 138, 139 supply chain, 138 Supreme Court, 7, 11, 89 surplus, 103 SUV, 12, 122 switching, 110 systems, 10, 14, 109, 112, 113, 126, 134, 138

targets, 6, 7, 9, 126 tariffs, 112 tax credits, 124, 125, 128 tax cuts, 133 tax incentives, 128 taxes, 110 technical assistance, 89, 132 technical change, 22 technology, 9, 82, 104, 105, 108, 111, 112, 121, 123, 124, 125, 129, 130, 131, 134, 139, 140 television, 19, 68 test procedure, 22, 49, 65, 66, 68 testimony, 103, 104, 110, 134 Texas, 126 time, 2, 8, 16, 17, 48, 65, 74, 79, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 103, 106, 107, 108, 109, 111, 112, 122, 123, 124, 125, 126, 128, 134, 137, 138, 139 time consuming, 83 time frame, 87 timetable, 85 title, 104 tolls, 113 top management, 87 total energy, 19, 21, 22, 129 Toyota, 125 tracking, 18, 22, 65, 84, 87 trade, 6, 12, 17, 48, 49, 50, 66, 67, 92, 122, 126, 127 trading, 6, 110, 134 traffic, 68 training, 89 trajectory, 123 transaction costs, 105, 106 transformation, 125 transistors, 138 transition, 114, 122, 128 transmission, 122, 139 transmits, 16 transparency, 86, 123 transparent, 72, 85, 86, 87 transport, 4, 115 transportation, 10, 123, 124, 138 travel, 10, 49, 67, 111, 113 Treasury, 1, 2, 128 trend, 123 triggers, 89 trucks, 1, 2, 3, 4, 6, 7, 8, 9, 10, 14, 109, 124, 125 tuition, 133 turnover, 107

T tanks, 76, 78, 134

U U.S. economy, 137

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Index U.S. Treasury, 1, 2 ubiquitous, 139 UK, 116, 117 uncertainty, 6, 82 uniform, 74, 125 United States, 5, 10, 11, 14, 15, 16, 20, 49, 66, 69, 71, 81, 101, 103, 119, 124, 140 universe, 6 updating, 22, 77, 86, 87 uranium, 137

V

walking, 106 Wall Street Journal, 120 warrants, 64 Washington Post, 120 water, vii, 18, 49, 67, 68, 71, 75, 76, 78, 80, 84, 92, 122, 123, 128, 137 water heater, vii, 18, 49, 67, 68, 71, 73, 76, 78, 80, 84, 128 wealth, 139 web, 112, 120 web-based, 112 weight reduction, 4 well-being, 12 Western Europe, 114 White House, 134 wind, 123, 137 windows, 13, 68, 129 winter, 129, 133, 134, 135 wireless, 113, 138 wireless sensor networks, 113 Wisconsin, 130 wisdom, 109, 139 witnesses, 134, 135 workload, vii, 72, 76, 86

Copyright © 2008. Nova Science Publishers, Incorporated. All rights reserved.

variables, 6 vehicles, 1, 2, 3, 4, 6, 7, 8, 9, 10, 11, 12, 13, 14, 109, 113, 121, 122, 124, 125, 134 venture capital, 123, 137 Vermont, 126 Vice President, 121 visible, 18 vision, 121 voice, 138 volatility, 129

W

Energy Efficiency Solutions, edited by Richard P. Cateland, Nova Science Publishers, Incorporated, 2008. ProQuest Ebook Central,