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Policy: Environment & Energy

Is the EPA too optimistic with its energy-efficiency goals?

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Critics are questioning whether the energy-efficiency goals that the Environmental Protection Agency set in its proposed power-plant rule are too rosy.

In its methodology, which sets differing targets for states to reach a nationwide goal of cutting power-sector carbon emissions 30 percent below 2005 levels by 2030, the EPA assumes 1 to 1.5 percent growth per year in energy efficiency between 2020 and 2030.

For some experts, that seems a reasonable mark. Some states already have goals to ramp up efficiency 2 percent annually.

"I think they're basing it on what they see states already doing. I think many would argue we could go a lot further," said Dan Bakal, director of the electric power program at the business sustainability group Ceres.

But for others, it's a lofty goal.

"Their projections, they are fairly dramatic," said Kevin Book, managing director of the consulting group ClearView Energy Partners. "What you have are projections that may or may not look like reality."

That, too, has colored opposition from industry groups such as the U.S. Chamber of Commerce.

While a study the Chamber put out ahead of the proposed rule's release has been roundly criticized -- chiefly because it assumed a 42 percent reduction, whereas the EPA went with 30 percent -- it still assumed that energy efficiency would yield annual increases of just 0.2 percent as manufacturing rebounds.

The EPA can go back to the drawing board before it finalizes the rule in June 2015. EPA Administrator Gina McCarthy said it likely will, telling Bloomberg she "wouldn't be surprised" if the agency made "significant" revisions.

Some states might find it harder to improve their energy efficiency, said Jennifer Macedonia, a senior adviser with the nonpartisan think tank Bipartisan Policy Center.

"[S]tates with smaller populations and lower in-state electricity demand, are not expected to have as much potential for demand-side energy-efficiency savings," she said in an email.

At the same time, though, the EPA is expecting those states to cut their emissions the least, Macedonia said. They include North Dakota (10.6 percent cut), Wyoming (18.9 percent) and Kentucky (18.3 percent), which rank last, second-to-last and 39th on the American Council for an Energy-Efficient Economy's scorecard, respectively.

"The good thing is there's a lot of opportunity out there for them," Bakal said.

Book said emphasizing energy efficiency was one way to mitigate some of the costs of the proposed regulation. Relying less on that would mean shifting more emphasis to growth in renewable energy, use of natural gas in power generation or bigger efficiency improvements at coal-fired power plants.

"There is this myth that is going around that energy efficiency is lying around waiting to be picked up," Book said. "Energy efficiency has an upfront cost that is often bigger than what people are willing to pay."

Still, plenty of states already have long-term energy-efficiency goals. Ohio, for example, passed a law in 2008 that requires a 22 percent efficiency improvement by 2025. The state must begin shaving consumption 2 percent annually beginning in 2019. The utilities in Ohio do much of that through specialized rate structures.

Different rate structures are pivotal for removing the disincentives for utilities to push energy efficiency, experts said. Some utilities might offer rebates for using energy-efficient appliances or to bake in incentives to reduce, or shift, power use during peak demand periods.

Utilities also could expand use of a cost-recovery mechanism known as "decoupling," which allows utilities to adjust electricity rates more frequently to recoup expenses that result from lower-than-expected consumption.

Currently, many utilities anticipate demand and set rates on a multi-year basis. The rate they charge is to recoup investments on fixed costs, such as infrastructure, as its fuel costs are variable. So if electricity consumption drops, the utility gets less money to cover its costs.

"It's making the utility financially indifferent in the short term to whether we conserve or not because they'll get their money back," said Scott Hempling, a utility regulatory attorney and past executive director of the National Regulatory Research Institute.

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