Energy Efficiency is the Cheapest Way to Reach Climate Goals Under Six Economic Models

May 19, 2015
Six different climate studies all point to the same conclusion: Energy efficiency is the cheapest way for the U.S. to reduce carbon dioxide emissions. And some models show consumer costs actually falling as the nation ramps up energy efficiency to meet the EPA’s Clean Power Plan.

Six different climate studies all point to the same conclusion: Energy efficiency is the cheapest way for the U.S. to reduce carbon dioxide emissions.

And some models show consumer costs actually falling as the nation ramps up energy efficiency to meet the Environmental Protection Agency’s Clean Power Plan.

Those are the findings in a new report by the Center for Climate and Energy Solutions, a non-profit policy organization. C2ES examined six studies that attempt to model the economics of the proposed federal rule.

The C2ES report comes as tension heightens about the cost of the Clean Power Plan, which the EPA intends to issue in final form this summer. The plan targets existing power plants and calls for states to come up with strategies to reduce U.S. carbon dioxide emissions 30 percent by 2030.

“All studies project that energy efficiency will be the most used and least-cost option to implement the plan,” said C2ES in the report.  “The studies also show that the effect of energy efficiency is large enough that overall electricity consumption declines.”

C2ES examined models put forward by the EPA, the Clean Air Task Force, Energy Ventures Analysis, National Economic Research Associates (NERA), the Natural Resources Defense Council (NRDC), and Rhodium/Center for Strategic and International Studies.

Prices down, not up

Most striking, under some scenarios consumers will actually see power costs decline — not increase as Clean Power Plan critics claim — when energy efficiency is used to reduce emissions.

The NRDC study showed the greatest savings — $4.5 billion per year — brought about by a drop in electricity use because of increased energy efficiency.

Meanwhile, the NERA study found the greatest rise in costs — $33.5 billion a year, which represents 9.2 percent of the nation’s total $364 billion spend on power. NERA looked at influences across the economy, and assumed the plan would create “capital scarcity.” It also assumed relatively high costs to install energy efficiency.

The results also varied between the models because the authors used different assumptions about how much natural gas the U.S. will use in the future and what its costs will be. NRDC, for example, factored in relatively low natural gas prices because it expects energy efficiency to curb demand for the fossil fuel.

Overall, most of the studies estimate that the Clean Power Plan will cost the average U.S. household less than 25 cents a day, C2ES said.

Less power generation

In a business-as-usual case, without the Clean Power Plan, the U.S. is likely to increase energy production by 748 TWh through 2030. It’s likely that natural gas and coal would account for most of the generation, the report said.

The picture changes dramatically when the carbon reduction strategy is super-imposed. It shows less power generation in general, and less coal-fired generation in particular. Meanwhile, use of natural gas generation still rises.  But add energy efficiency, and the need for generation drops substantially, in one case wiping out the entire 748 TWh increase.

Given the cost of building new power plants, a scenario with no energy efficiency — and therefore more generation — means higher prices. Further, the nation becomes more dependent on natural gas. More demand for more natural gas means higher prices for the fuel, which then boosts electricity rates.

In fact, absent energy efficiency, the Clean Power Plan raises energy costs by $9.2 billion per year under the NRDC model and $57.1 billion per year under the NERA model. Some of the variation is due to different expectations about the cost of installing energy efficiency measures.

Meanwhile, C2ES finds growth in renewables and nuclear h0lding steady with or without the carbon reduction strategy.

The report did not suggest that any one model is better than the others, but said that states preparing their carbon reduction strategies could benefit from several high-level insights found in all six studies.

Here is a link to the full C2ES report “Modeling EPA’s Clean Power Plan: Insights for Cost-Effective Implementation.”

How do you see the economics of the Clean Power Plan shaping up? Let us know by commenting below or on our LinkedIn Group, Energy Efficiency Markets.

About the Author

Elisa Wood | Editor-in-Chief

Elisa Wood is an award-winning writer and editor who specializes in the energy industry. She is chief editor and co-founder of Microgrid Knowledge and serves as co-host of the publication’s popular conference series. She also co-founded RealEnergyWriters.com, where she continues to lead a team of energy writers who produce content for energy companies and advocacy organizations.

She has been writing about energy for more than two decades and is published widely. Her work can be found in prominent energy business journals as well as mainstream publications. She has been quoted by NPR, the Wall Street Journal and other notable media outlets.

“For an especially readable voice in the industry, the most consistent interpreter across these years has been the energy journalist Elisa Wood, whose Microgrid Knowledge (and conference) has aggregated more stories better than any other feed of its time,” wrote Malcolm McCullough, in the book, Downtime on the Microgrid, published by MIT Press in 2020.

Twitter: @ElisaWood

LinkedIn: Elisa Wood

Facebook:  Microgrids