Why we never need to build another polluting power plant
July 28, 2008
By Joseph Romm
Coal? Natural gas? Nuke? We can wipe them all off the drawing board
by using current energy more efficiently. Are you listening, Washington?
Suppose I paid you for every pound of pollution you
generated and punished you for every pound you reduced. You would
probably spend most of your time trying to figure out how to generate
more pollution. And suppose that if you generated enough pollution, I
had to pay you to build a new plant, no matter what the cost, and no
matter how much cheaper it might be to not pollute in the first place.
Well, that's pretty much how we have run the U.S. electric grid for
nearly a century. The more electricity a utility sells, the more
money it makes. If it's able to boost electricity demand enough, the
utility is allowed to build a new power plant with a guaranteed
profit. The only way a typical utility can lose money is if demand
drops. So the last thing most utilities want to do is seriously push
strategies that save energy, strategies that do not pollute in the first place.
America is the Saudi Arabia of energy waste. A 2007 report from the
international consulting firm McKinsey and Co. found that improving
energy efficiency in buildings, appliances and factories could offset
almost all of the projected demand for electricity in 2030 and
largely negate the need for new coal-fired power plants. McKinsey
estimates that one-third of the U.S. greenhouse gas reductions by
2030 could come from electricity efficiency and be achieved at
negative marginal costs. In short, the cost of the efficient
equipment would quickly pay for itself in energy savings.
While a few states have energy-efficiency strategies, none matches
what California has done. In the past three decades, electricity
consumption per capita grew 60 percent in the rest of the nation,
while it stayed flat in high-tech, fast-growing California. If all
Americans had the same per capita electricity demand as Californians
currently do, we would cut electricity consumption 40 percent. If the
entire nation had California's much cleaner electric grid, we would
cut total U.S. global-warming pollution by more than a quarter
without raising American electric bills. And if all of America
adopted the same energy-efficiency policies that California is now
putting in place, the country would never have to build another
polluting power plant.
How did California do it? In part, a smart California Energy
Commission has promoted strong building standards and the aggressive
deployment of energy-efficient technologies and strategies -- and has
done so with support of both Democratic and Republican leadership
over three decades.
Many of the strategies are obvious: better insulation,
energy-efficient lighting, heating and cooling. But some of the
strategies were unexpected. The state found that the average
residential air duct leaked 20 to 30 percent of the heated and cooled
air it carried. It then required leakage rates below 6 percent, and
every seventh new house is inspected. The state found that in outdoor
lighting for parking lots and streets, about 15 percent of the light
was directed up, illuminating nothing but the sky. The state required
new outdoor lighting to cut that to below 6 percent. Flat roofs on
commercial buildings must be white, which reflects the sunlight and
keeps the buildings cooler, reducing air-conditioning energy demands.
The state subsidized high-efficiency LED traffic lights for cities
that lacked the money, ultimately converting the entire state.
Significantly, California adopted regulations so that utility company
profits are not tied to how much electricity they sell. This is
called "decoupling". It also allowed utilities to take a share of any
energy savings they help consumers and businesses achieve. The bottom
line is that California utilities can make money when their customers
save money. That puts energy-efficiency investments on the same
competitive playing field as generation from new power plants.
The cost of efficiency programs has averaged 2 to 3 cents per avoided
kilowatt hour, which is about one-fifth the cost of electricity
generated from new nuclear, coal and natural gas-fired plants. And,
of course, energy efficiency does not require new power lines and
does not generate greenhouse-gas emissions or long-lived radioactive
waste. While California is far more efficient than the rest of the
country, the state still thinks that with an even more aggressive
effort, it can achieve as much additional electricity savings by 2020
as it has in the past three decades.
Serious energy efficiency is not a one-shot resource, where you pick
the low-hanging fruit and you're done. In fact, the fruit grows back.
The efficiency resource never gets exhausted because technology keeps
improving and knowledge spreads to more people.
The best corporate example is Dow Chemical's Louisiana division,
consisting of more than 20 plants. In 1982, the division's energy
manager, Ken Nelson, began a yearly contest to identify and fund
energy-saving projects. Some of the projects were simple, like more
efficient compressors and motors, or better insulation for steam
lines. Some involved more sophisticated thermodynamic "pinch"
analysis, which allows engineers to figure out where to place heat
exchangers to capture heat emitted in one part of a chemical process
and transfer it to a different part of the process where heat is
needed. His success was nothing short of astonishing.
The first year of the contest had 27 winners requiring a total
capital investment of $1.7 million with an average annual return on
investment of 173 percent. Many at Dow felt that there couldn't be
others with such high returns. The skeptics were wrong. The 1983
contest had 32 winners requiring a total capital investment of $2.2
million and a 340 percent return -- a savings of $7.5 million in the
first year and every year after that. Even as fuel prices declined in
the mid-1980s, the savings kept growing. The average return to the
1989 contest was the highest ever, an astounding 470 percent in 1989
-- a payback of 11 weeks that saved the company $37 million a year.
You might think that after 10 years, and nearly 700 projects, the
2,000 Dow employees would be tapped out of ideas. Yet the contest in
1991, 1992 and 1993 each had in excess of 120 winners with an average
return on investment of 300 percent. Total savings to Dow from just
those projects exceeded $75 million a year.
When I worked at the Department of Energy in the mid-1990s, we
hired Nelson, who had recently retired from Dow, to run a "return on
investment" contest to reduce DOE's pollution. As they were at Dow,
many DOE employees were skeptical such opportunities existed. Yet the
first two contest rounds identified and funded 18 projects that cost
$4.6 million and provided the department $10 million in savings every
year, while avoiding more than 100 tons of low-level radioactive
pollution and other kinds of waste. The DOE's regional operating
officers ended up funding 260 projects costing $20 million that have
been estimated to achieve annual savings of $90 million a year.
Economic models greatly overestimate the cost of carbon mitigation
because economists simply don't believe that the economy has lots of
high-return energy-efficiency opportunities. In their theory, the
economy is always operating near efficiency. Reality is very
different than economic models.
In my five years at DOE, working with companies to develop and deploy
efficient and renewable technologies, and then in nearly a decade of
consulting with companies in the private sector, I never saw a
building or factory that couldn't cut electricity consumption or
greenhouse-gas emissions 25 percent to 50 percent with rapid payback
(under four years). My 1999 book, "Cool Companies," detailed some 100
case studies of companies that have done just that and made a great
deal of money.
There are many reasons that most companies don't match what the best
companies do. Until recently, saving energy has been a low priority
for most of them. Most utilities, as noted, have little or no
incentive to help companies save energy. Funding for government
programs to help companies adopt energy-saving strategies has been
cut under the Bush administration.
Government has a very important role in enabling energy savings. The
office of Energy Efficiency and Renewable Energy at the U.S.
Department of Energy has lots of (underfunded) programs that deliver
savings every day. Consider, for instance, Chrysler's St. Louis
complex, which recently received a DOE Save Energy Now energy
assessment. Using DOE software, Chrysler identified a variety of
energy-saving measures and saved the company $627,000 a year in
energy costs -- for an upfront implementation cost of only $125,000.
The key point for policymakers now is that we have more than two
decades of experience with successful state and federal
energy-efficiency programs. We know what works. As California energy
commissioner Art Rosenfeld -- a former DOE colleague and the
godfather of energy efficiency -- put it in a recent conversation, "A
lot of technology and strategies that are tried and true in
California are waiting to be adopted by the rest of country."
So how do we overcome barriers and tap our nearly limitless
efficiency resource? Obviously, the first thing would be to get all
the states to embrace smarter utility regulations, which is a core
strategy of Barack Obama's plan to reduce greenhouse gases. But how
does the federal government get all the states to embrace efficiency?
We should establish a federal matching program to co-fund state-based
efficiency programs, with a special incentive to encourage states
without an efficiency program to start one. This was a key
recommendation of the End-Use Efficiency Working Group to the Energy
Future Coalition, a bipartisan effort to develop consensus policies,
in which I participated. The first year should offer $1 billion in
federal matching funds, then $2 billion, $3 billion, $4 billion, and
finally stabilizing at $5 billion. This will give every state time to
change their regulations and establish a learning curve for energy efficiency.
This program would cost $15 billion in the first five years, but save
several times that amount in lower energy bills and reduced
pollution. Since the next president will put in place a cap-and-trade
system for greenhouse gases, the revenues from auctioning the
emissions permits can ultimately be used to pay for the program.
We should restore a federal focus on the energy-intensive industries,
such as pulp and paper, steel, aluminum, petroleum refining and
chemicals. They account for 80 percent of energy consumed by U.S.
manufacturers and 90 percent of the hazardous waste. They represent
the best chance for increasing efficiency while cutting pollution.
Many are major emitters of greenhouse gases other than carbon
dioxide. A 1993 analysis for the DOE found that a 10 to 20 percent
reduction in waste by American industry would generate a cumulative
increase of $2 trillion in the gross domestic product from 1996 to
2010. By 2010, the improvements would be generating 2 million new jobs.
For these reasons, in the 1990s, the Energy Department began forming
partnerships with energy-intensive industries to develop clean
technologies. We worked with scientists and engineers to identify
areas of joint research into technologies that would simultaneously
save energy, reduce pollution and increase productivity. The Bush
administration slashed funding for this program by 50 percent -- and
keeps trying to shut it down entirely.
Indeed, conservatives in general have cut the funding or shut down
entirely almost all federal programs aimed at deploying
energy-efficient technologies. Conservatives simply have a blind spot
when it comes to energy efficiency and conservation, seeing them as
inconsequential "Jimmy Carter programs."
I recently testified at a Senate Environment and Public Works
Committee hearing on nuclear power and spoke about how alternative
technologies, particularly energy efficiency, were a much better bet
for the country. Senator George Voinovich (R-Ohio) said this was
"poppycock," and then asked all the pro-nuclear witnesses to address
the question, "If nuclear power is so uncompetitive, why are so many
utilities building reactors?"
Voinovich apparently has forgotten about the massive subsidies he
himself voted to give the nuclear industry in 2005. He seems to be
unaware that states like Florida allow utilities to sharply raise
electric rates years in advance of a nuclear plant delivering even a
single electron to customers. If you could do that same
forward-pricing with energy efficiency, we would never need to build
another polluting plant.
Although he is a senior member of the Senate and a powerful voice on
energy and climate issues, Voinovich doesn't seem to know the first
thing about the electricity business; namely, that a great many
utilities have a huge profit incentive to build even the most
expensive power plants, since they can pass all costs on to consumers
while retaining a guaranteed profit. But they have a strong
disincentive from investing in much less costly efforts to reduce
electricity demand, since that would eat into their profits.
The next president must challenge the public service commission in
every state to allow utilities to receive the same return on energy
efficiency as they are allowed to receive on generation. That single
step could lead the country the furthest in solving our
ever-worsening climate and energy problems.
Joseph Romm is a senior fellow at the Center for American Progress, where he oversees ClimateProgress.org. He is the author of "Hell and High Water: Global Warming -- The Solution and the Politics." Romm served as acting assistant secretary of energy for energy efficiency and renewable energy in 1997. He holds a Ph.D. in physics from MIT.
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