Redistributed as a Service of the National Library for the Environment*
95085: Energy Efficiency: A New National Outlook?
Fred J. Sissine
Updated December 12, 1996
In 1992, the Nation spent $522 billion for energy ($1996 constant), while energy efficiency and conservation measures were saving the economy about $275 billion per year. Energy is conserved when technical means are employed to improve efficiency or to reduce energy waste. In 1996 constant dollars, conservation research and development (R&D) funding declined from $698 million in FY1979 to $198 million in FY1988 and then climbed to $486 million in FY1994, 31% below the FY1979 peak.
From FY1973-FY1995, DOE spent $6.3 billion ($1996 constant) for energy efficiency R&D. This spending history can be viewed within the context of DOE spending for the three major energy supply R&D programs: nuclear, fossil, and renewable energy R&D. From FY1948 through FY1972, the federal government spent about $21 billion for nuclear (fission and fusion) energy R&D and about $5 billion for fossil energy R&D. From FY1973 through FY1995, the federal government has spent $41 billion for nuclear, $20 billion for fossil, $10 billion for renewables, and $6 billion for energy efficiency. Total energy R&D spending from FY1948-FY1995 reached $103 billion, including $62 billion or 60% for nuclear, $25 billion or 24% for fossil, $10 billion or 10% for renewables, and $6 billion or 6% for energy efficiency.
The passage of the Energy Policy Act (EPACT, P.L. 102-486) and a priority commitment to energy efficiency by the Clinton Administration raised the spending levels for FY1994 and FY1995. However, a $24.8 million rescission initiated by the Congress brought FY1995 R&D spending $441 million (or $455 million in $1996 constant).
The FY1997 DOE Budget Request seeks $760 ($715 million adjusted), a $204 million or 37% increase over the FY1996 Appropriation. This includes $148 million or 35% increase for R&D and $56 million or 41% increase for grants. The Request proposes increases of: $44 million for the Partnership for a New Generation of Vehicles (PNGV), $24 million for "Industries of the Future," $52 million for climate change mitigation, $13 million for federal energy management, $44 million for weatherization grants, and $14 million for state energy conservation grants.
In contrast, the House approved only $524 million for FY1997, targeting several programs for elimination. The Senate Appropriations Committee recommended $571 million, but floor action was not completed. The Omnibus Appropriations Act (P.L. 104-208) provides $570 million, which is $190 million or 25% lower than the Administration Request. But it is $46 million or 9% more than the House mark. Further, it is $14 million or 3% more than the FY1996 mark in current dollar terms, and includes $9 million more for Weatherization, $4 million more for Industries of the Future (crosscutting), and $4 million more for Combustion Engines.
Combining the 29% real cut in FY1996 with the flat (after 3% inflation) funding for FY1997 leaves the FY1997 Program at about 70% (in real terms) of its FY1995 capability. If this downsizing trend continued at about 15% in real terms, it would bring the Program to an end in FY2002.
On September 30, the President signed the Omnibus Appropriations Act into law as P.L. 104-208. It includes the Interior Appropriations bill (H.R. 3662). The law provides $570 million for DOE's FY1997 Energy Efficiency Program. This is $14 million or 3% more than the FY1996 mark, and includes $9 million more for Weatherization, $4 million more for Industries of the Future (crosscutting), and $4 million more for Combustion Engines. Also, this is $46 million or 9% more than the House mark, and about $1 million less than the Senate Interior Appropriations Committee's mark. The House approved nearly $524 million for the Program, including about $24 million in floor amendments to the Appropriations Committee's mark. On March 19, the Administration presented its FY1997 Budget Request which sought $760 million ($715 million after adjustments for overcharge funding and prior year balances). Reflecting its high priority for this program, the Request was a $204 million or 37% increase over the FY1996 mark. It included increases of: $44 million for the Partnership for a New Generation of Vehicles (PNGV), $24 million for "Industries of the Future," $52 million for climate change mitigation in industry and buildings, $13 million for federal energy management, $44 million for weatherization grants, and $14 million for state energy conservation grants.
Efficiency and Conservation Defined
Energy efficiency is increased when an energy conversion device, such as a steam turbine, undergoes a technical change that enables it to produce more heat or electricity from the same amount of fuel. Energy efficiency is also improved when an energy end-use device, such as a household appliance or commercial building, undergoes a technical change that allows it to provide the same service while using less energy. Energy is conserved when efficiency is improved or when energy waste is avoided. The latter occurs, for example, when a computerized thermostat saves on furnace energy use by lowering the household temperature in winter when the house is unoccupied. Another example is the use of heat left over from an industrial process to raise steam for producing electricity. Hence, the terms "conservation" and "efficiency" are identified with technical means for producing a constant level of output or services with less energy. These ideas contrast with energy curtailment, which involves a decrease in output (e.g., turning the thermostat down) or services (e.g., driving less) to curb energy use. That is, energy curtailment occurs when saving energy causes a reduction in services or sacrifice of comfort.
Energy efficiency savings occur as the nation's stock of appliances, automobiles, industrial equipment, and buildings are either replaced by more energy-efficient stock or are otherwise modified to reduce energy waste. The new stock or modifications come into use through the operation of market forces or through governmental and utility programs. The resultant savings are often measured by observing differences between actual and projected energy demand levels. In contrast to energy supply facilities, where a few companies can easily meter actual energy production, energy conservation savings are usually estimated on the basis of assumed changes in the energy use patterns of millions of consumers or "end-users." The main technique for obtaining measures of actual savings from programs is evaluation research, a branch of the social sciences concerned with assessing costs and impacts. Credible assessments of energy savings and conservation program effectiveness require reliable baseline information on end-use energy patterns and strict application of the scientific principles of evaluation research.
Contribution to National Energy Supply
National energy use has climbed about 13 Q (quads -- quadrillion Btus, British thermal units) since 1985, reaching a record high of 91 Q in 1995. DOE's 1995 report Energy Conservation Trends finds that energy efficiency and conservation activities from 1973 through 1991 curbed the pre-1973 growth trend in primary energy use by about 31 Q, a 27% reduction. This saves the economy about $275 billion annually, which is equal to about half of the nation's $522 billion annual energy spending. Of the 31 Q in savings, 56% comes from industry, 21% from residential buildings, 5% from commercial buildings, and 18% from transportation. DOE's 1990 report, Energy Efficiency: How Far Can We Go?, projects that use of existing cost-effective technology could produce similar savings in the future. A report by the Alliance to Save Energy and others, America's Energy Choices, concludes similarly that a least-cost market strategy would hold energy demand to 84 Q in the year 2010. However, this report adds that market incorporation of environmental costs of energy use could hold demand to 73 Q, and pursuit of CO2 reduction goals to achieve climate stabilization could reduce demand as low as 69 Q by 2010.
The Conservation Trends report estimates oil savings of 5 Q or 2.5 million barrels per day (mb/d) in the highway vehicle and aircraft realms of the transportation sector. Assuming that these savings help avoid oil imports at an average price of $15 per barrel, energy efficiency measures cut the 1995 trade deficit by about $13 billion, or nearly 8%.
Federal Program and Congressional Interest
From 1974 to the present, Congress established several complementary programs, primarily at the Department of Energy (DOE), to implement energy saving measures in virtually every sector of societal activity. These programs were created originally in response to national oil import security and economic stability concerns. However, many recently created programs are driven more by national interests in industrial competitiveness, electric power, and environmental quality. The federal effort grew rapidly in the 1970s, but waned in the 1980s as a result of the Reagan Administration's "free market" energy policy and generally declining energy prices. The DOE energy efficiency program now includes R&D funding, grants to state and local governments, and a regulatory framework of appliance efficiency standards and voluntary guidelines for energy-efficient design in buildings. In addition, there is a regulatory program that allows independent cogenerators to sell electricity to utilities. (A detailed description of DOD programs appears in DOE's Congressional Budget Request: FY1997, DOE/CR-0037, v. 4, March 1996.)
Since 1988, concern about the prospect of global climate change has led the Congress to establish funding for energy efficiency, as well as for renewable energy and other greenhouse gas mitigation measures, at DOE and several other federal and international agencies including EPA, the Department of State's Agency for International Development (AID), and the World Bank's Global Environment Facility (GEF).
From FY1973 through FY1995, DOE spent about $6.2 billion in 1996 constant dollars for energy conservation R&D, which amounts to about 6% of the total federal spending for energy supply R&D. Also, DOE has spent about $6.8 billion on grants for state and local conservation programs. Spending for all conservation R&D and state and local assistance programs declined sharply and steadily from FY1981 through FY1988. During this period, concern about the mounting federal deficit and falling oil prices spurred efforts to cut federal spending for most energy programs, including energy conservation. In constant (1996) dollars, the total conservation budget fell from $2.0 billion in FY1979 to $475 million in FY1988, a 76% drop. However, national concerns about energy security, industrial competitiveness, electric power supplies, and the environment turned spending upward, reaching nearly $746 million for FY1995 (For details of historic trends in funding, contact the author of this issue brief).
DOE Strategic Planning and Performance Assessment
The Government Performance and Results Act (GPRA, P.L. 103-62) seeks to strengthen strategic planning, promote development of performance measures, and link both more directly to the budgeting process in order to improve management and control spending. The development of performance indicators for the Energy Efficiency Program (as well as other R&D programs) can draw from peer review, metrics, customer satisfaction surveys. In the 1991 National Energy Strategy Plan, the Bush Administration characterized energy efficiency as the "cornerstone" of its energy policy. The Clinton Administration has taken an even broader view, envisioning energy efficiency as a key element of a larger strategy for economic growth, environmental improvement, and enhanced trade and competitiveness. Both Administrations sought repeated increases in the DOE energy efficiency budget. The FY1995 increase was driven largely by an attempt to fulfill goals established by EPACT and by the international Framework Convention on Climate Change (FCCC) treaty. In 1994 DOE released its strategic plan, Fueling a Competitive Economy, and its Strategic Plan for Energy Efficiency. They stress support for cost-effective energy efficiency measures as a key way to improve productivity, competitiveness, and equipment exports. R&D partnerships with industry are emphasized, to shift from waste management to a more economically efficient strategy focused on improved resource efficiency and pollution prevention. Total quality management is named in the plan as a key organizational element to effect the strategy within DOE. The Administration's 1995 National Energy Plan, Sustainable Energy Strategy, builds on these themes and promotes the economic opportunities to be derived from shifting DOE's R&D focus increasingly toward efficiency.
The 1995 report of DOE's Task Force on Strategic Energy R&D, Energy R&D: Shaping our Nation's Future in a Competitive World, finds several reasons to continue support of DOE energy programs generally, and energy efficiency programs specifically. The report notes that energy-related businesses spend less on R&D than other industries. Further, the private sector tends to under-invest in R&D relative to public policy goals and longer-term objectives. On the other hand, only 7% of non-defense government R&D spending goes to DOE energy programs. This contrasts with Japan, which spends twice as much as the United States on energy R&D. The report suggests that the oil crises of the 1970s has caused the Nation to lose trillions of dollars worth of economic growth. The report finds that the energy sector is key to the competitiveness of the economy and that R&D is a major contributor to economic growth and job creation. It expresses concern about increased oil imports, and contends that the government should continue support of energy security and competitiveness goals. Among the portfolio of energy technologies, it notes the large past contribution from energy efficiency and finds that efficiency should remain a top priority. The report concludes that development of DOE's quality metrics should continue and that a 15% cost reduction should be achieveable through management improvements. Recommendation #3 emphasizes that DOE should "maintain its commitment to energy efficiency and renewable energy."
Issues for Congressional Consideration
The FY1997 House mark includes $42 million for Buildings R&D, which is $37 million or 47% less than the DOE Request; $15 million for Federal Energy Management, which is $14 million or 44% less; $160 million for Transportation, which is $62 million or 28% less; and $110 million for Industry, which is $50 million or 31% less. The mark for Weatherization grants is $44 million or 28% less, and state energy grants are $13 million or 35% less than the request.
Relative to the FY1996 appropriation, the House mark is $32 million or 6% lower (in current dollar terms). The $387 million mark for R&D represents a cut of $31 million or 8%. It includes reductions of $7 million or 14% for Buildings R&D, $1 million or 4% for Federal Energy Management, $17 million or 10% for Transportation, and $6 million or 5% for Industry. Weatherization grants would be unchanged (in current dollar terms), and state energy grants would drop by $1 million or 3%. Relative to the FY1996 mark, the House Interior Appropriations Committee's FY1997 mark was $56 million or 10% lower. Committee targets for elimination include the Home Energy Rating System ($4.2 million), Technology Marketing ($10 million), Lighting and Appliance purchases ($1.6 million), Urban Heat Islands ($0.7 million), Inventions and Innovations Grants ($1.7 million), Student Vehicle Competition ($0.9 million) and Advanced Housing Technology ($0.4 million). Nevertheless, the Committee's report language does not seek another moratorium on appliance efficiency standards, although it does call on DOE to employ a "consensus" process for issuing new standards.
Further, the Conference agreement on the FY1997 Budget resolution (H.Con.Res. 178, H.Rept. 104-612) calls for Energy Efficiency programs to be cut 36% through 2002. The earlier, House-passed version would have phased out DOE Energy Efficiency R&D with the close-down occurring in FY1999. For FY1997, the House version had recommended $230 million for R&D, a $188 million or 45% cut from the FY1996 level. Thus, there may be attempts to both raise and lower Energy Efficiency funding relative to the House mark. On one hand, the House mark is much lower than the Administration's DOE request, which could prompt Senate action to raise the mark. On the other hand, the House mark is much smaller than the 45% cut in the House Budget Resolution, which could prompt Senate attempts to set the mark even lower.
On May 24, DOE issued a formal response to cuts proposed for Energy Efficiency and Renewable Energy in the House-passed version of the FY1997 Budget Resolution, House Budget Resolution Decimates Funding for Clean Energy. DOE argues that such cuts would, by the year 2010, add $10 billion per year to the oil import burden and trade deficit, while foregoing $15 billion in deficit reduction through reduced Federal energy use. Also, the cuts would increase consumer energy costs by $5 billion and raise industrial energy costs by $11 billion. Further, there would be major environmental impacts through increases in industial pollution, air pollution and greenhouse gas emissions.
DOE's response contends that Energy Efficiency programs yield a benefit-cost ration of four-to-one. It stresses that the House proposal to eliminate Energy Efficiency programs would cause the Nation to forsake its technological lead in several areas of advanced transportation, buildings, and industrial technology. The House proposal would also unravel many collaborative R&D ventures with industry, other collaborations with state and local governments, and disolve energy management infrastructure for federal agencies. Additionally, DOE notes that R&D program terminations would hit the national laboratories hard, including reductions of 300 jobs at Oak Ridge National Laboratory, 275 jobs at the National Renewable Energy Laboratory, and 235 jobs at other laboratories.
The DOE Energy Efficiency Request document includes a number of proposed account restructurings. Presumably, these account changes arise from DOE's strategic planning focus on economic competitiveness goals and as a response to the federalism trend toward block-granting and empowerment of state and local governments. Under the Office of Transportation, "Heat Engines" becomes "Combustion Engines." Under the Office of Buildings, three "Buildings Research" categories are collapsed into two. Also, a new line for "State and Local Partnerships" is created, and it includes Weatherzation Assistance grants, State Energy Conservation grants, and Municipal Energy Management," all of which are brought from the Office of Technical and Financial Assistance (OTFA).
Three account changes occur under the Office of Industrial Technology. First, a new line for "Industries of the Future (Specific)" is created, which contains eight sector-focused programs, seven of which are drawn from the old account line for "Other Process Efficiency." DOE finds that opportunties for improved energy efficiency and other benefits are greatest in the basic materials industries that supply U.S. manufacturing. So, it has refocused industrial R&D to better align with the seven industries that account for over 80% of U.S. industrial energy use and over 80% of wastes produced by the manufacturing sector. The eight "vision" industries are forest and paper products, steel, aluminum, metal casting, glass, chemicals, petroleum refining, and textiles. Textiles, the only new sector program, would receive $12 million, the largest funding increase. Aluminum would increase by $7 million, and metal casting and glass would both go up by about $4 million. DOE reports that its role is to act as a catalyst of industry-led efforts to develop sector- wide technology roadmaps. DOE reports that three industries -- forest products, steel, and aluminum -- have already agreed to broad technology goals, which is the first step in the process.
Second, a new line for "Industries of the Future (Crosscutting)" would include cogeneration (from the old "Energy Systems" account) and advanced materials (from the old "Process Efficiency" account). Third, another new line for "Technology Access" collects Technology Transfer, NICE-3, and Climate-Wise from "Implementation and Deployment," as well as Motor Challenge from Energy Systems, and Inventions and Innovations from OTFA.
In contrast to the Administration's proposed funding increases for FY1997, congressional action appears aimed at further budget cuts and downsizing. At the April 16, 1996, hearing on the DOE Energy Efficiency Program held by the House Interior Appropriations Subcommittee, Chairman Regula indicated that there is less money scheduled for Interior programs in FY1997 than was available for FY1996 and suggested $525 million is a more likely Subcommittee funding recommendation than the $715 million that DOE requests. He noted that the Subcommittee would like DOE to submit a proposal closer to the $525 million figure in order that its priority programs could be preserved instead of the Subcommittee trying to identify priorities for DOE. Also, a fair amount of Subcommittee questions focused on concerns about whether there is a need to increase funding for the Federal Energy Management Program (FEMP) in order to make federal facilities more energy efficient. Other questions focused on a recent DOE appliance standards rulemaking and responses to it.
In response, DOE Assistant Secretary Ervin reported that DOE has enacted overall cuts and was streamlining many programs to meet budget deficit concerns and congressional downsizing goals. Nevertheless, she noted that the President has set Energy Efficiency as his high priority among energy programs. Ervin argued that Efficiency programs deliver substantial benefits by cutting business costs, improving environmental quality, reducing long-run health risks, maintaining stable energy prices, and enhancing energy security. Further, she said they provide competitive advantage and economic benefits to U.S. businesses, industry and citizens. Also, Ervin noted that FEMP achieved $900 million in energy savings during FY1994 and has produced cumulative savings of $10.9 billion ($1996) relative to the 1985 baseline. Finally, she testified that DOE is reinventing the appliance standards process to improve quality, increase stakeholder involvement, and reduce confrontation and time requirements to achieve standards which benefit both consumers and manufacturers.
An April 17, 1996, the House Science Subcommittee on Energy held an authorization hearing on DOE's FY1997 Budget Request for Energy Efficiency. Much of the hearing focused on a draft General Accounting Office (GAO) critique of DOE's 1995 report Success Stories: The Energy Mission in the Marketplace, which identifies the dollar value of energy savings for an array of DOE R&D projects that have attained successful commercial use. GAO claimed to find a number of methodological errors and "unsubstantiated" savings estimates, and contended that the report failed to be comprehensive and thus could not be used as a valid measure of the overall effectiveness of DOE programs. DOE, in turn, argued that its report never claimed to be comprehensive, but it nevertheless highlights billions of dollars of energy savings and value to the economy just from a few programs. Several subcommittee Members also concluded that the GAO report has major shortcomings. The most elaborate critique of GAO was presented in a four- page letter from Ranking Minority Member Brown. The Subcommittee concluded that both the DOE and GAO reports should be reworked and re-issued.
Chairman Rohrabacker also emphasized the budget deficit concern and need to cut back the Request, noting that expanding budgets tend to create a neglect of priorities. He stressed that the program needs to focus more on research and cut back on support for demonstration projects and "subsidies" to industry and utilities. In particular, the Chairman noted that there seems to be too much emphasis on commercialization activities that are better left to the private sector. Other subcommittee members suggested that level funding at the FY1996 level would be more reasonable than the proposed increase and questioned whether the proposed increase for the PNGV is "corporate welfare" for the major automobile manufacturers. Still other subcommittee members sounded an alternate note, arguing that energy use and, thus, the DOE Energy Efficiency Program are of vital importance to the economy and environment.
DOE Assistant Secretary Ervin noted that the total DOE request is lower than for FY1996, observing that the Department is streamlining its operation and cutting costs. The Administration's priority emphasis on Efficiency and Renewables was emphasized. Ervin emphasized that the Efficiency Program supports a number of key national interests including the environment, economy and trade. She stressed that DOE is trying to stabilize Efficiency funding near the FY1995 level, recounting that the past history of erratic funding for Efficiency has been hard on its partnerships with the private sector and on its return on investment. Ervin also observed growing concern about economic security due to rising oil import levels. She further argued that a stress "basic" research tends to put artificial and counter- productive boundaries on the R&D process. Mr. Nemtzow of the Alliance to Save Energy added that 90% of air pollution comes from energy production, many new jobs can be created by a "high" energy efficiency strategy, and that there is an $84 billion export market for efficient products. He also responded that the Efficiency Program is not corporate welfare and that "science is not helpful if it is not used."
On August 5, Inside Energy reported (p. 5) that a coalition of environmental, consumer and renewable energy industry groups have asked DOE to seek $1.1 billion for energy efficiency and renewable energy in its FY1998 budget request. This is close to the amount that DOE requested for FY1997. The Sustainable Energy Coalition points to the creation of the House Renewable Energy Caucus (which reached 101 Members as of October 4) and successful floor amendments that increased the FY1997 appropriation marks as signs of increasing support for efficiency and renewables. The Coaliton acknowledges that DOE's overall FY1998 budget is likely to decrease, but suggests that funding reductions be focused on conventional energy technologies supported by fossil and nuclear energy programs.
What is the Appropriate Federal Role in Energy Efficiency?
The energy policy perspective of the 104th Congress appears to be driven primarily by interest in reducing the budget deficit and trimming accumulated federal government functions and programs. This is reflected in the major spending scale- back called for in the House budget resolution (H.Con.Res. 67, H.Rept 104-120). The resolution contends that its budget deficit reduction plan would lower interest rates by 2% which, in turn, would boost economic activity by creating jobs, increasing personal income, and generating new federal revenue. It discusses multi- year cuts for energy efficiency, beginning with the contention that energy conservation has "been a clear success" due to market forces. It concludes further, on page 31, that:
Government spending on energy conservation, on the other hand, has been much less successful. Business has incentives to market, and customers to buy, conservation technologies that work well. DOE is left to fund less reliable and less promising technologies.
The primary question is what level of federal support is justified for energy efficiency. The history of federal energy efficiency policy has been considerably more volatile, arousing deeper philosophical debates and perhaps causing more polarized political attention than policy debates for most other federally supported energy policies. The swings of the policy pendulum are very evident in the funding history for federal energy efficiency programs. Sharp differences have surfaced between the Clinton Administration and the 104th Congress over funding and other aspects of the Department of Energy's (DOE's) energy efficiency programs. The Clinton Administration treats energy efficiency and renewables as the highest priority among energy options and as key parts of a broader policy design for economic growth, increased competitiveness, and enhanced environment. This is reflected in its budget requests for FY1995 and FY1996 which aim for large spending increases to support EPACT and CCAP. This conflicts directly with the Republican majority in the 104th Congress, which has focused on federal budget deficit reduction, and targeted inefficient and unnecessary programs as its primary goal. The remainder of this section elaborates on the impact of the federal role and the policy debate over market interference versus market failures.
Impact of Federal Energy Efficiency Programs. DOE's 1995 report Energy Conservation Trends finds that energy prices have had a strong impact on past efficiency and conservation, but it is not the only factor. For the period from 1973 to 1991, the report attributes about 13 Q or 40% of primary energy savings to economic growth and other non-price structural factors such as shifts in industry mix, vehicle mix, commercial building type, and migration. However, since energy prices began dropping in 1986, DOE finds long-term trends of rising demand and gradual declines in energy savings for the residential, commercial and industrial sectors. The report concludes that the annual rate of improvement (decrease) in national energy intensity (energy required per unit of economic production) dropped from 2.1% before 1986 to 0.7% after 1986.
Decisions about funding levels usually involve some questions about the benefits and costs of program effects. There have been some efforts to evaluate the national impact of DOE energy efficiency programs. In 1984, Soderstrom et al. reported that two different approaches yielded energy savings estimates that differed by a factor of ten. In 1993, Brown et al. reported that DOE's weatherization program cuts heating energy use by 18% at a cost below energy market prices and with dollar benefits that clearly outweigh program costs. In 1995, Jordan and Beschen report on the planning phase of a project to evaluate the energy savings and greenhouse gas reductions of the 1993 Climate Change Action Plan (CCAP) programs at DOE. National evaluations of DOE energy efficiency programs provide data that can play a key role in funding decisions and policy directions. Should the application of evaluation research to DOE energy efficiency programs be strengthened to more thoroughly cover R&D as well grants, regulatory standards, and commercialization programs?
Federal Energy Subsidies and the Budget Deficit. Studies of federal energy subsidies show that energy supply technologies have also received the lion's share of commercialization incentives. The 1980 DOE/Pacific Northwest Laboratory (PNL) report, An Analysis of Federal Incentives Used to Stimulate Energy Production, concluded that a total of $516 billion (1992 dollars) was expended on energy subsidies, especially tax subsidies, from 1948 to 1978, with 50% going to oil, 25% to fossil and nuclear electricity, and 25% to nuclear, hydro, gas, and coal technologies. A 1985 study, The Hidden Costs of Energy, found that $60 billion (1992 dollars) was expended on energy subsidies in 1984, with 36% going to nuclear, 18% to crude oil, 15% to fossil-electric, 11% to natural gas, 8% to coal, 6% to hydro, 3% to other renewables, and 2% to efficiency. A 1992 report by the Energy Information Administration (EIA), Federal Energy Subsidies, reports that $8 billion was expended on energy subsidies in FY1992, with 23% going to electricity, 22% to natural gas, 14% to coal, 12% to oil, 11% to nuclear, 11% to renewables, and 8% to energy conservation.
An April 1993 report by the Alliance to Save Energy, Federal Energy Subsidies: Energy, Environmental, and Fiscal Impacts, concludes that a general reduction of subsidies would reduce the federal budget deficit while restoring balance to energy markets and promoting environmental goals. It estimates the market value of 1989 federal energy subsidies at $36 billion. DOE energy R&D spending represents less than 10% of this amount. The $36 billion is equivalent to more than 8% of the Nation's $436 billion of energy spending in 1989. Provisions that the study treats as subsidies include tax incentives, R&D spending, grants, loans, and insurance risk assumptions. Of the total, 58% promoted fossil fuels, 29% supported nuclear fission, 6% promoted new renewable energy technologies, and 3% went to energy efficiency. The report contends that because the great bulk of incentives support mature fossil and nuclear energy equipment, the existing subsidy structure markedly distorts the marketplace for energy in a direction away from energy efficiency.
The Cato Institute emphasizes that federal tax and other types of business subsidies devised to correct market distortions actually create huge market distortions of their own and have a "corrupting influence" on entrepreneurial capitalism, tending to convert corporate risk-takers into lobbyist "caretakers." Cato emphasizes that "to enhance the competitiveness and productivity of American industry [it is better] to create a level playing field, which minimizes government interference in the marketplace and substantially reduces tax rates and regulatory burdens" than it is to issue tax and business subsidies. The Institute recommends no subsidies or tax breaks for energy conservation or alternative and established fuels. Congress is advised to "abolish all tax deductions, including all of the special tax breaks for industries identified by the Progressive Policy Institute (PPI), in exchange for lower overall corporate and personal tax rates on business and personal taxpayers." PPI identifies 120 business programs and tax provisions and finds that their elimination would save $265 billion over 5 years. Tax subsidies, such as those for energy production, are seen to create barriers to competition. PPI recommends elimination of supports for oil and gas expensing of intangible drilling and development costs, special tax credit for fuel producers, percentage depletion cost recovery for oil and gas, and the special tax subsidies for alcohol fuels. Though proposals were made to eliminate billions of dollars in Federal subsidies, energy supply subsidies have not been targeted for budget cuts or elimination under the House and Senate budget resolutions.
Climate Change Concerns
Wherever energy efficiency and conservation measures curb fossil fuel use, they will also reduce carbon dioxide (CO2) emissions, as well as pollutants that contribute to acid rain and urban smog. Among human-produced emissions, carbon dioxide is the major contributor to the greenhouse effect that is thought by many to cause global climate change. U.S. fossil energy (coal, oil, natural gas) use currently produces about one-fourth of the world's CO2 emissions. According to the Energy Information Agency, the Nation's CO2 emissions will grow from 1.34 billion tons of carbon per year in 1990 to about 1.64 billion tons per year in the year 2010.
Since 1988, the federal government has accelerated programs that study the science of global climate change and created programs aimed at mitigating fossil fuel- generated carbon dioxide (CO2) and other human-generated emissions that are thought to contribute to the greenhouse effect. Funding support for energy efficiency as a mitigation measure began with support for programs at AID and the World Bank and has come to include program initiatives at DOE and EPA and the creation of GEF. Efforts to reduce greenhouse gas emissions accelerated after the 1992 United Nations Conference on Environment and Development (UNCED) concluded with the signing of the Rio Declaration, Agenda 21 (an action program), and the Framework Convention on Climate Change (FCCC) Treaty. Agenda 21 promotes the development, transfer, and use of improved energy-efficient technologies, the application of economic and regulatory means that account for environmental and other social costs, and other energy efficiency-related measures. The FCCC Treaty calls for each nation to develop a strategy for emissions reduction, inventory emissions, and promote energy and other technologies that reduce emissions.
In October 1992, the Congress enacted EPACT, which included provisions directing the preparation of a national inventory of emissions and authorizing certain energy efficiency programs and regulations designed to reduce energy use and, thus, emissions. In April 1993, President Clinton pledged that the United States would attempt to reduce emissions to the 1990 level by the year 2000. This was followed by a June 1993 White House Conference on mitigation options, and an October 1993 Climate Change Action Plan (CCAP) that recommended policy actions, emphasizing a central role for energy efficiency measures. House and Senate hearings on the CCAP were held during 1994. In early 1994, DOE established the "Green Room" at DOE to centralize energy efficiency and other energy policy directions. In July 1994, AID issued a strategy report, Global Climate Change: The USAID Response. In September 1994, the Administration issued its Climate Action Report, summarizing U.S. policy developments adopted as part of the international FCCC treaty for stabilizing CO2 emissions. House and Senate hearings in 1994 included testimony which argued that the CCAP emissions reduction goals were not high enough, and that a gap existed between the stated goals and achievable savings. Although EIA inventories of greenhouse gas emissions have been published and a variety of CCAP programs funded for FY1995, there is a growing expectation that the year 2000 stabilization goal may not be met.
In March 1995, the first conference of parties to the FCCC met in Berlin, Germany. On May 19, 1995, the House Subcommittee on Energy and Power held a hearing on the status of international climate change negotiations. Undersecretary of State Timothy Wirth testified that the goals of the Berlin meeting were to negotiate a mandate for the next steps under FCCC and to establish a pilot phase for joint implementation projects. He stated further that the Berlin agreement specifies no new greenhouse emission reduction commitments for developing countries, advances implementation of existing reduction commitments for developed countries, and allows for negotiations of additional commitments from developed countries.
In July 1996, the second conference of parties to the FCCC met in Geneva. According to the New York Times (July 17, p. A6) the Administration announced that it will urge the world's nations to adopt, by the end of 1997, "realistic, verifiable and binding" targets for reversing the trend in greenhouse gas emissions and climate warming. The Administration intends to use market-based approaches, such as trading pollution permits. Nevertheless, this new position signals a more aggressive stance than the existing policy of voluntary measures. The Administration's position has found support with many environmental groups, but it has drawn criticism from the Global Climate Coalition, an energy industry-based group, that it could dampen the business and economic environment. However, others contend that it would stimulate markets for renewable energy equipment and other "clean" energy technologies. The next action steps will be formalized at an FCCC conference to be held in Tokyo in late 1997.
The Foreign Operations bills of FY1991 through FY1995 direct that funding for the Global Warming Initiative at the World Bank is to include support for energy efficiency efforts. Further, EPACT contains energy efficiency provisions related to appliances, buildings, and utilities that could reduce electrical energy use significantly. Since coal and natural gas are primary fuels for utilities, a sizable savings in CO2 could be achieved. Also, recent funding for EPA's "green" programs is targeted at stimulating specific market forces to curb CO2. For FY1996, the House approved (H.Rept. 104-143) $25 million for AID projects that promote "power sector efficiency, renewable energy and energy efficiency." It also approved $50 million for GEF, a $40 million or 44% cut.
American Council for an Energy-Efficient Economy. Proceedings from the ACEEE 1994 summer study on energy efficiency in buildings. Washington, August 1994. (10 v.)
International Energy Program Evaluation Conference. Energy program evaluation. Sixth International Conference. Evanston, IL, August 1995. 893 p.
Jordan, Gretchen and Beschen, Darrell. Planning for the evaluation of the U.S. Department of Energy's energy partnerships/climate change programs. Paper prepared for Seventh International Energy Program Evaluation Conference. 1995. 10 p.
Smith, Vaclav. Does energy efficiency explain Japan's economic success? Current history, v. 90, 1991: 175-181.
Soderstrom, Jon et al. Have Department of Energy programs saved energy? Evaluation review, v. 8, 1984, p. 93-112.
U.S. Department of Energy. Measuring energy efficiency in the United States' economy: a beginning. October 1995. 91 p. (DOE/EIA-0555(95)/2)
-----Sustainable energy strategy: clean and secure energy for a competitive economy (National Energy Policy Plan). July 1995. 73 p.
----- Energy conservation trends. Washington, 1995. 50 p. (DOE/PO-0034)
----- National energy strategy. Technical annex 5. Analysis of options to increase exports of U.S. energy technology. 1992. (DOE/S-0096P)
U.S. Department of Energy. Oak Ridge National Laboratory. Utility DSM programs from 1989 through 1998: continuation or cross roads? Feb. 1995. 37 p. (ORNL/CON-405)
-----National impacts of the weatherization assistance program in single-family and small multifamily dwellings. 1993. (ORNL/CON-326) 250 p.
U.S. General Accounting Office. Energy conservation: appliance standards and labeling programs can be improved. 1993 (GAO/RCED-93-102)
U.S. Office of Technology Assessment. Building energy efficiency. April 1992. (OTA-E-518)
----- Energy efficiency: Challenges and opportunities for electric utilities. September 1993. (OTA-E-561).
----- Energy efficiency technologies for Central and Eastern Europe. May 1993. (OTA-E-562)
----- Industrial energy efficiency. August 1993. (OTA-E-560)
----- Saving energy in U.S. transportation. July 1994. (OTA-ETI-589)
|National Council for Science and the Environment
1725 K Street, Suite 212 - Washington, DC 20006
202-530-5810 - info@NCSEonline.org