Report

Evaluation: Environmental Progress in the Electric Sector (Winter 2004 Trust Magazine article)

Introduction

The overall goal of the Trusts' work on climate change is to reduce emissions of carbon dioxide and other greenhouse gases that contribute to global warming. Our efforts focus on: (1) increasing the use of energy efficient and renewable technologies in the electric sector; (2) promoting policies to reduce air pollution and carbon dioxide emissions from the nation's power plants; and (3) encouraging the design and implementation of government policies and business practices that will significantly reduce greenhouse gas emissions.

When we first entered this line of work, in 1990, the debate over climate change was just emerging, with little policymakers consensus on climate science and how--or whether--to address the problem. There was virtually no opportunity to address the global warming issue at the federal level; consequently the Trusts concentrated on state and regional strategies to reduce carbon emissions--in particular, by capitalizing on small but growing regional efforts to improve the environmental performance of electric utilities, the nation's largest industrial source of greenhouse gases. These efforts were active primarily at state utilities commissions, the public bodies that regulate electric utilities. 

In collaboration with The Energy Foundation, the Trusts built a network of groups known as the Regulatory Reform Network, which became the organizing force for this reform effort. Within five years, the Trusts were supporting 19 reform groups active in 37 states. During this period, these groups played an important role in promoting $9.6 billion in investments from utilities in energy-saving programs and reducing nationwide growth in peak electricity demand by an estimated one-half and annual electric sales by nearly 2 percent. 

During 1995 the Trusts and The Energy Foundation redirected the work of the Regulatory Reform Network to respond to the efforts of state and federal policymakers to restructure the electricity industry. Since 1996, the Electric Sector Reform Initiative supported by the Trusts and the Energy Foundation promoted the adoption of policies that support investment in clean energy during the transition to what policy makers hoped would be a more competitive electricity industry. The Initiative strived primarily to secure both public funding and policy mandates that increase energy efficiency and expand the use of renewable energy sources. 

In a cluster review completed in December 1999, the Trusts' Planning and Evaluation unit included the Initiative in an evaluation of the utility reform efforts from 1991 through 1998. The Initiative's progress from 1999 through 2002 has now been jointly assessed by staff of Planning and Evaluation and the Environment program. An in-house assessment (rather than an external evaluation) was undertaken because most of the aggregate results reported here were compiled by grantees from public sources. Planning and Evaluation has spot checked some of these sources and, for those reviewed, concluded that the available data reported are accurate. 

Some of the objectives in the following sections note the passage of legislation. In these cases, the Trusts' investments supported public education, nonpartisan research and similar non-lobbying activities to encourage public support for the issue at hand. 

Summary of Progress 
The specific goal of the utility-restructuring initiative was to promote adoption of state and federal policies that support investments in energy-efficient and renewable energy technologies. In 1999 the Environment program set an ambitious target of reducing projected carbon emissions from the electric sector by 48 million metric tons by the year 2010. This target is roughly equivalent to completely eliminating carbon emissions from Turkey's economy. 

Our overall conclusion for the following five objectives is that the organizations with which we have worked have played an influential role and made significant contributions to the outcomes achieved. Of course, these groups did not act alone, and other actors also played meaningful roles. In certain states, for example, the public utilities commissions themselves are strong supporters of energy-efficiency programs. These states would probably have invested in efficiency programs, but the level of investment is almost certainly higher because of the efforts of the organizations supported by the Trusts. 

STATE FUNDING FOR ENERGY EFFICIENCY PROGRAMS 
Objective: Secure state funding for public-benefit programs* totaling more than $1.2 billion annually by 2002, of which more than $700 million annually is allocated to energy efficiency programs, achieving an estimated energy savings of at least 62 million megawatt hours (mWh) and carbon emissions reductions of 7 million metric tons (MtC) by 2010. 

In 2001, the most recent year for which complete data were available, public funding for energy efficiency programs totaled $830 million, which is well beyond the funding target of $700 million. Judging whether this funding will still be in place in 2010 is difficult because commitments in force today may be reconsidered as events change. 

Still, we see reasons to be optimistic about the long term: three of the biggest supporters of public funding--California, Massachusetts and New York--have extended their funding commitments. California has renewed for 10 years, and Massachusetts and New York for five, the last doubling its funding commitment. The anticipated funding from these three states alone is close to $550 million per year, or almost 80 percent of the long-term target of $700 million per year. Other states that have made substantial commitments to public funding for energy efficiency programs, such as New Jersey, Texas and Wisconsin (combined public funding of approximately $230 million in 2001), are expected to continue their policies for the foreseeable future. 

If public funding commitments are sustained at or above $700 million per year, it is likely that the energy savings target of 62 million mWh in 2010 will be met. Reaching even 80 percent of the target savings would be a significant achievement, equal to completely eliminating the need to generate electricity for about five million homes. 

Forecasting the effects of energy efficiency programs on carbon emissions is inherently difficult because the programs themselves do not directly reduce these emissions. Instead, the energy savings from these programs can decrease the amount of electricity that power plants must generate to meet demand. When demand is reduced at fossil-fuel burning plants, carbon dioxide emissions are avoided. Recognizing these complexities, the Environment program set a cautious carbon-reduction target of 7 MtC avoided as a result of saving 62 million mWh of electricity. If the electricity savings target is met, the carbon-reduction target is highly likely to be met or exceeded. 

STATE SUPPORT FOR RENEWABLE ENERGY
Objective: Secure state funding and policy mandates by 2002 that will result in the estimated production of 32 million mWh of new wind, biomass, solar, and geothermal generation and carbon emissions reductions of 6 MtC by 2010. The near-term milestone is at least 6.5 million mWh of new renewable generation because of state requirements by the end of 2002. 

The target for 2002 has been exceeded, based on estimates for 2002 indicating that about 8 million mWh were generated in response to renewable requirements and other policies implemented by states. This is roughly equivalent to the electricity production from three large coal-fired power plants. 

If existing state policies on renewable generation stay in place, then the amount of electricity generated from these sources could lead to new renewable generation in excess of 40 million mWh by 2010--or roughly equivalent to the electricity output of 16 coal plants. Additional states are expected to adopt policies that support the development of renewables to meet the growing demand for electricity, which could offset any retrenchment in existing states or expand total renewable generation well beyond the target. 

CUSTOMER CHOICE FOR RENEWABLE ENERGY
Objective: Stimulate customer choice of renewable-based electricity products by 2002 that will result in the estimated production of 33 million mWh of new wind, biomass, solar and geothermal generation and carbon emissions reductions of 6 MtC by 2010. The near-term milestone is at least 7.5 million mWh of new renewable generation because of customer choice by the end of 2002. 

This objective seeks to promote markets for renewables by giving customers an opportunity to choose a clean electricity supplier. The near-term milestone of 7.5 million mWh of new renewable generation by 2002 has not been met. Rough estimates suggest that renewable generation installed in 2002 in response to customer choice could generate about 3 million mWh. If the planned capacity in the pipeline is built and operated, this total could climb to nearly 4.5 million mWh in the near future. 

Despite some progress, there is no mistaking that a market for renewable energy stimulated by customer choice has been slow to develop. The policy failure and subsequent energy crisis in California put the brakes on electricity restructuring at the state and federal level. Renewable suppliers once saw restructuring as an opportunity to market clean electricity directly to consumers. With many states postponing or pulling back from restructuring, opportunities for alternative suppliers to market directly to customers have grown much more slowly than anticipated. Moreover, the recent recession has slowed the demand for new generating capacity and made the additional cost of certain renewables less attractive to customers. 

The program's investments to encourage the development of green power markets have been modest. At this point, the prospects for reaching the 2010 targets for new renewable generation and carbon reductions are highly uncertain. Government's rush to promote more competitive electricity markets has slowed. As a result, we are not optimistic that customer choice alone will lead to significant new supplies of renewable generation. 

FEDERAL MATCHING FUNDS
Objective: Secure federal matching funds for state energy-efficiency programs of $1.75 billion annually by 2002 that will achieve estimated energy savings of at least 161 million mWh and carbon emissions reductions of 19 MtC by 2010. 

Objective: Secure federal matching funds for state renewables development programs and policy mandates by 2002 that result in the estimated production of 79 million mWh of new wind, biomass, solar and geothermal generation that will achieve carbon emissions reductions of 16 MtC by 2010. 

When these objectives were formulated in 1999, federal legislation on restructuring was still being seriously considered, and there was a possibility that such legislation might contain matching funds to support state-level policies that promoted clean and efficient energy technologies. A year later, as the failure of California's policy turned into national news, it became clear that the prospects for federal action on restructuring had dimmed considerably, and they have not subsequently brightened. 

In light of this external environment, the initiative's targets and efforts shifted to pursue opportunities consistent with the above two objectives: namely, to encourage policies that would increase the nation's commitment to clean energy by stimulating investments in energy efficiency and renewable energy. Several new targets were set that represented progress toward this revised objective: (1) prevent decreases in federal funding for existing clean energy programs, predominantly investments in research and development; (2) encourage the adoption of new federal tax incentives for clean energy; (3) prevent a rollback in federal efficiency standards for central air conditioners and heat pumps; (4) promote new federal efficiency standards for appliances; and (5) accelerate progress toward a federal renewable portfolio standard, requiring generators to produce a certain portion of their electricity from renewable sources. 

One significant development to date is that federal funding for research and development for clean energy has actually increased modestly in the face of the 30- to 40-percent cuts proposed by the Administration. Congress has also been debating energy policy legislation since 2002. The House and Senate have each passed bills that deal with some or all of the remaining four targets. 

As of this writing, the House passed the Conference Report on the 2003 energy bills, but the Senate failed to shut off debate on the bill by two votes. Congress is expected to try again to pass the Conference report early in 2004. Although the Report contains many provisions of great concern to the environmental community, it also includes significant new efficiency standards and tax credits for advanced energy savings and renewable energy technologies. 

The overall progress on this new objective has been good, considering the prevailing policy landscape of the past two years. The degree to which any legislation has an effect on eventual carbon emissions will, of course, depend on the specific provisions included and how they are implemented. 

Conclusion and Next Steps
The Initiative sought to advance policies that provide support for energy efficiency and renewable energy in key states and at the federal level where debates on restructuring the electric industry were occurring. When the Trusts' board approved the strategy for this effort in 1999, electric-industry restructuring was the centerpiece of electric-sector policy decisions. At the time, 21 states had enacted restructuring legislation, three others had issued regulatory orders for restructuring, and 17 states were exploring restructuring. At the same time, Congress was considering a number of comprehensive federal restructuring proposals. 

The policy landscape shifted significantly in the next two years, as serious problems related to price volatility and reliability emerged, most spectacularly in California. Progress toward restructuring was virtually halted both at the federal level and in states that had not already acted. In spite of these changes, the Initiative was largely successful in advancing its objectives and shifting its strategy to respond to the new policy environment. 

The effort to encourage regulatory reforms that would accelerate the adoption of clean-energy technologies became one of the Trusts' longest-running environmental initiatives. Until the current debate on national energy policy concludes, it will be unclear whether the Initiative will reach its overall emission-reduction goal. Nevertheless, our work has contributed to greater levels of public investment in these technologies and a smaller environmental footprint by electricity producers and consumers. 

Kathleen Welch is a program officer in Environment and Les Baxter is chief officer in Planning and Evaluation at the Trusts. Lea Aeschliman is an energy consultant based in New Hampshire. 

*Public benefit programs are funds typically created through a small surcharge placed on the bills of electric customers to support energy efficiency, renewable energy, low-income energy programs, and public-purpose research and development activities.

Pew is no longer active in this line of work, but for more information, visit the Center for Climate and Energy Solutions site.