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The Linkage Between Energy Efficiency and Air Quality

By Matthew Brown
Program Director, Energy

Introduction

State policymakers influence how consumers buy electricity and how providers meet the demand for electricity. The providers deal daily with uncertainty about how they will generate the proper amount of electricity to meet demand for power (generating too much can overload the system, generating too little can lead to blackouts), how they will deliver electricity over power transmission and distribution lines, and how they will do all of this at least cost and with the least environmental impact.

Several means exist to further reduce the amount of pollution that power plants release, including the use of emissions controls on smokestacks, new coal-burning and processing technologies, use of cleaner coal, natural gas, or renewable energy such as biomass or wind power. Each of these will continue to play a big part in meeting the nation's electricity needs. Another potentially cost-effective resource in this mix 3/4 and the focus of this paper 3/4 is energy efficiency.

To understand the air quality effects of energy efficiency one must first understand a little about how the electric industry operates and about the environmental profile of the electric industry. Both vary from one region to another, and national average statistics are only useful as a general guideline. Three steps allow state policymakers to understand the emissions effects of efficiency.

1. Understand the environmental profile of the region's power industry
2. Understand which power plants will be affected by energy efficiency

Energy efficiency affects air quality in different ways in different parts of the country. The effect depends on the emissions profile of the electric industry in each region. The following tables show the emissions profile of the electric industry in different parts of the country.

To give a sense of the regional variation in emissions, a U.S. Environmental Protection Agency study estimated emissions of carbon dioxide per kilowatt hour from power plants in different parts of the country. The estimates are as follows, averaged on a regional basis:

The U.S. EPA has not yet produced emissions factors that take into account which power plants are turned on or off at different times for the main criteria pollutants. The average emissions profile, however, follows. This gives an indication of the variation in emissions among different parts of the country.

The emissions reductions that are possible as a result of energy efficiency from different parts of the country vary so greatly because of the different fuels used to generate electricity.

Not all power plants will be shut off because people use less electricity. Only those that have been dispatched most recently will be turned off, in effect dispatching the power plants in reverse. As a result, efficiency measures will tend to affect the power plants at the top of the dispatch curve shown above. State policymakers need to understand which plants will be affected by energy efficiency. An example may help illustrate the point.

Indiana: A Coal-Dependent Utility

A 1994 study of a coal-dependent utility illustrated a practical application of the effect of energy efficiency on emissions. The study showed that the utility would be able to use energy efficiency programs to meet from twelve to eighteen percent of its Clean Air Act requirements at the time of the study. Seen another way, the utility would be able to use efficiency programs to reduce its SO2 emissions in the range of 4.6 percent to 9.6 percent, while reducing its energy demand by a range of 6.1 percent to 12.4 percent. This study showed that energy efficiency is not, by itself, the only solution to environmental requirements, but that it can play a significant part in meeting those requirements.

The study illustrates something else that is significant: emissions do not fall by the same percent as demand for energy. In fact, emissions fall less steeply than energy use because the power plants most affected by energy efficiency also happen to be the cleanest-burning facilities. They are cleaner than the average plant on the power system.

Efficiency measures will not by themselves solve all regions' air quality problems, and the contribution that efficiency measures will make toward meeting air quality goals will vary from one utility system to another. But it appears evident that they can form one integral part of a larger strategy of meeting air quality goals.

State legislatures have at their disposal a number of policy measures to encourage energy efficiency programs. Some of these programs are most appropriate for competitive power markets, and others may be appropriate for both competitive markets and for power markets that remain price-regulated.

Eighteen states have put in place a system benefit charge to support energy efficiency programs. This charge is a fee placed on every customer's bill. The proceeds from these fees support energy efficiency programs of various kinds.

Several states offer tax benefits for the purchase of energy efficient equipment. Maryland, for instance, enacted a set of sales tax exemptions for energy efficient products based in part on products that qualify as Energy Star products. Energy Star is a certification program run by the U.S. Environmental Protection Agency that qualifies certain products as meeting energy efficiency criteria.

Some competitive power markets allow efficiency measures to bid against supply measures of all types to meet demand. In these markets, the market would have the option of choosing among an array of options, such as power delivered at a specified price, or efficiency measures delivered at a specified price. If the efficiency measures can be delivered less expensively than the energy supply option, then the efficiency measure wins the contract.

Not all states and regions will allow efficiency to bid in the same auctions to meet energy needs as supply options. State legislatures may consider options that would make certain that efficiency can participate in these auctions. The result may not only be a least cost option, in some cases, but an option that can reduce emissions from the power system.

Efficiency measures can and do reduce emissions from power plants. But they do so in different ways across the country. Examples of emissions reductions from the Midwest may not be immediately transferable to the East Coast, or other regions. As a result, state policymakers may want to find out how efficiency will affect emissions in their own region. This effort will give them a realistic expectation of just how much efficiency will contribute to emissions reductions goals.

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