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**Testimony of William Prindle,**

**Acting Executive Director**

**American Council for an Energy-Efficient Economy (ACEEE)**

**Before the Senate Energy and Natural Resources Committee**

**Hearing on:**

**The Energy Efficiency Promotion Act (S. 1115)**

**April 23, 2007**

**Summary**

**Introduction**

Energy efficiency is the "first fuel" in America's race for a clean and
secure energy future. Energy efficiency has saved consumers and
businesses trillions of dollars in the past three decades, including
more than half a trillion dollars in 2006 alone. These efforts should
now be accelerated in order to:

-   Save American consumers and businesses even more money;

-   Change the energy supply and demand balance to reduce energy prices;

-   Decrease America's addiction to oil, particularly oil imports;

-   Strengthen our economy (since energy savings generate American jobs
    and capital investment); and

-   Reduce the risks of global warming by moderating carbon dioxide
    emissions growth.

**The Urgency and the Opportunity for Efficiency Policy**

America's greatest energy challenges---energy security and global
warming---are converging to force historic changes in U.S. energy and
environmental policy. Our growing dependence on imported oil and natural
gas, combined with high and volatile fuel prices threaten both our
economic health and our geopolitical strength. The recent IPCC Fourth
Assessment reports on the growing evidence of climate change, coupled
with the Supreme Court's recent decision that carbon dioxide is a
pollutant regulated under the Clean Air Act, increase the urgency and
clarify the legal basis for national policy action to reduce greenhouse
gas emissions.

Energy efficiency is the one resource that addresses both the energy
security and climate challenges, while enhancing economic prosperity.
Domestic energy supplies with low carbon content will take time to
develop; but we can start now to accelerate efficiency investment, which
will enable low-carbon domestic supplies to begin reducing energy
imports and carbon emissions. If we do not use efficiency as the "first
fuel" in the race for clean and secure energy, clean energy supply
technologies may not be able to be deployed fast enough to meet runaway
energy demand.

ACEEE research shows that new energy efficiency policy initiatives could
make a big difference on the energy security and global warming fronts.
For example:

-   A 2005 ACEEE analysis found that reducing natural gas use by about
    4% over five years could reduce natural gas prices by over 20%.
    Reducing demand for oil and for refined petroleum products is also
    likely to reduce prices.

-   A 2006 ACEEE study finds that we can reduce U.S. oil use by more
    than 5 million barrels per day by 2020. That's equivalent to almost
    doubling current U.S. oil production---which no serious petroleum
    expert views as possible. Improvements to passenger vehicles account
    for more than 3 million barrels per day of savings, but more than 2
    million barrels per day of savings are available in the residential,
    commercial, and industrial sectors, and in heavy vehicles and
    airplanes.

-   Another 2006 ACEEE study found that the Regional Greenhouse Gas
    Initiative (RGGI) cap and trade system for power-sector carbon
    dioxide emissions in the northeastern U.S. can have a positive
    impact on the regional economy provided increased energy-efficiency
    policy commitments are a key part of implementation efforts.

**Past Energy Policy Acts, and the "Efficiency Gaps" They Left
Unfilled**

The Energy Policy Act of 2005 contained some useful efficiency
provisions, particularly new equipment efficiency standards and energy
efficiency tax incentives. Other provisions authorized in the Act may
help as well, but virtually all of these lack funding or other critical
follow-up actions. Overall, ACEEE now estimates that the efficiency
provisions in this law will reduce energy use in 2020 by 1.8 quadrillion
Btu, which is 1.5% of projected national energy use. More than 75% of
the savings are from equipment efficiency standards and efficiency tax
incentives. Experience with the Energy Policy Act of 1992 shows a
similar pattern -- most of the savings came from a few provisions, and
the majority of provisions proved to be more show than substance.

However, federal energy policy over the past twenty years has failed to
address two of the core energy challenges in our economy: surging
electricity demand and rapidly rising motor fuel usage. These two
sectors are key elements to solving our energy security and climate
problems. It is urgent that Congress take strong, prompt, unambiguous
action in these areas. Had Congress adopted the major electricity and
oil efficiency provisions that were deliberated in the development of
EPAct 2005, ACEEE estimates that 2020 savings would have been up to four
times higher.

**The Energy Efficiency Promotion Act**

ACEEE commends the Committee for leading the way in the 110^th^ Congress
with an energy efficiency bill. It reflects the principle that
efficiency needs to be the first fuel in our energy resource policy
process. Our comments focus on the following parts of the bill:

1.  **Title I: Lighting technologies.** We support the reflector lamp
    standard contained in Section 102, which is based on a consensus
    agreement among ACEEE, manufacturers, and other stakeholders. The
    other provisions are also useful, including Sense of the Senate
    resolution in Section 104 that we hope will soon lead to a consensus
    agreement on a national standard to phase out the least efficient
    general service incandescent light bulbs, of which more than a
    billion are sold each year and pave the way for an eventual
    transition to dramatically more efficient light sources. We also
    recommend a new section calling for a study and plan for reaching a
    higher tier of energy performance for general service lighting that
    will meet or exceed the performance of today's compact fluorescent
    products with no compromise in light quality and continued consumer
    choice in the market.

2.  **Title II: Efficiency Standards.** This title contains
    consensus-based standards for residential boilers, industrial
    electric motors, and residential appliances, developed
    collaboratively among ACEEE, manufacturers, and other stakeholders.
    It also contains important provisions we support which enhance the
    Department of Energy's flexibility and capacity to create efficiency
    standards which best meet the statutory goals of "maximum energy
    savings which ... \[are\] technically feasible and economically
    justified." These provisions authorize regional standards for
    heating and cooling equipment, clarify the intent of the law
    regarding federal pre-emption of state appliance efficiency
    standards, allow for flexible application of more than one
    efficiency metric for a given product if justified, and allow DOE to
    expedite rulemakings based on consensus agreements. We also support
    Section 206's requirement for FTC Energy Guide labeling of consumer
    electronic equipment. In our analysis, this class of products is the
    fastest-growing energy use in American homes, and American consumers
    need energy use information to make informed choices on these
    products.

3.  **Title III:** **Efficient Vehicles.** ACEEE supports the priorities
    identified in this title for vehicle efficiency technology research
    and deployment. We support the authorization of loan guarantees to
    facilities for the manufacture of parts for fuel-efficient vehicles,
    as well as incentives for manufacturers and suppliers to retool to
    produce advanced technology vehicles. We note however that the
    discussion of advanced lean burn technology should clarify that fuel
    economy for diesels is to be compared with that of gasoline vehicles
    *on an energy-equivalent basis*. This issue of gasoline-equivalence
    of diesel was not properly resolved in the EPAct 2005 tax credits,
    despite Senate intent; it has caused confusion in the implementation
    of the credits and should be clarified through this bill.

> We also support the allocation of resources to developing domestic
> capability in energy storage for vehicles and to advancing electric
> drive technologies. However, it should be noted that DOE has spent
> hundreds of millions of dollars in the past on technologies of this
> kind without accelerating domestic manufacturers' production of
> vehicles that use them. Within the scope of this bill, we suggest that
> part of the funding proposed in this section be used for a competition
> to produce a plug-in hybrid meeting certain performance and cost
> criteria. This would help to ensure some real-world progress on
> vehicle efficiency would follow from the proposed technology
> investment of over \$400 million per year.

4.  **Title IV: National Energy Efficiency Goals.** While this title
    contains non-binding goals, we want to emphasize the need to set
    binding national targets for energy efficiency. While competitive
    markets will ultimately deliver the technologies and practices to
    reach these goals, markets do best when they have clear and simple
    targets to meet. We applaud the Committee for setting an energy
    productivity goal for the nation; the 2.5% annual improvement
    represents nearly a 50% improvement in current productivity growth,
    and would sharply reduce energy demand growth overall.

> We especially support the energy savings targets in section 401,
> though we recommend that the fuel economy aspects of this section be
> more specific. We note that the President's Twenty in Ten proposal, on
> which the 2017 target for the section appears to be based, relies very
> heavily on a loosely-defined set of alternative fuels, and only
> moderately accelerates fuel economy improvement. While the feasibility
> of deploying alternative fuels infrastructure is unproven, fuel
> economy technologies and costs are well known, and therefore a greater
> emphasis on fuel economy provides a better balance of risk for the
> nation. Accordingly, ACEEE recommends that fuel economy targets be set
> so as to save at least 12 billion gallons of fuel in 2017, 45 billion
> gallons in 2025, and 68 billion gallons in 2030.
>
> We also recommend that a new section be created that sets electricity
> savings targets for distribution utilities, such that covered
> utilities would be required to save 10% of electricity sales by 2020.
> Many states have set such Energy Energy Efficiency Resource Standards
> (EERS), often in coordination with renewable energy standards. We
> believe that setting efficiency standards is essential to the success
> of any renewable energy policy, because moderating demand growth is
> needed to allow clean supply sources to make a discernible difference
> in fossil fuel energy use.

5.  **Title V:** **Federal Leadership.** ACEEE supports the provisions
    of this title, especially the permanent authorization of the Energy
    Savings Performance Contracting (ESPC) program, and the assessment
    of Combined Heat and Power opportunities at federal facilities. We
    recommend that Congress place a special priority on installing CHP
    technology at the Capitol powerplant, which could be accomplished
    through an ESPC or similar vehicle.

6.  **Title VI:** **State and Local Initiatives.** ACEEE supports the
    provisions of this title, especially section 603's requirements for
    utilities and states to include energy efficiency in resource
    planning, and to reform ratemaking policies to make energy
    efficiency a better business proposition for utilities. We recommend
    that the bill also include Regional Transmission Organizations
    (RTOs) among the entities covered by this section. This section
    should also be linked ultimately to a federal Energy Efficiency
    Resource Standard (EERS) that sets quantitative targets for energy
    savings for utilities, with the goal of saving 10% of electricity
    sales by 2020. Sections 139 and 140 of EPAct 2005 called for a study
    and pilot program for EERS. The study is complete, and shows that
    these policies are gaining acceptance and enjoying success in a
    number of states. Given the increased urgency to address carbon
    emissions from electric utilities, this should be a high priority
    for Congress in 2007.

**Energy Savings**

ACEEE estimates that the appliance and equipment efficiency standard
provisions in this bill together can produce savings as follows:

-   **Electricity**: at least 50 billion kilowatt hours per year, or
    enough to power roughly 4.8 million typical U.S. households

-   **Natural gas**: 170 million therms per year, or enough to heat
    about a quarter million typical US homes.

-   **Water**: at least 560 million gallons per day, or about 1.3% of
    total daily potable water usage.

-   **Dollars**: more than \$12 billion in net benefits for consumers

We also estimate that significant additional savings would result from
the sections that improve DOE authority to set better standards.

**Conclusion**

ACEEE supports the Energy Efficiency Promotion Act as a major additional
step on the road to a sustainable energy future. We recommend a number
of ways that this bill can be augmented, within its existing provisions,
by adding new provisions, and through additional legislation.

**Introduction**

ACEEE is a nonprofit organization dedicated to increasing energy
efficiency as a means of promoting both economic prosperity and
environmental protection. We were founded in 1980 and have contributed
in key ways to energy legislation adopted during the past 25 years,
including the Energy Policy Acts of 2005 and 1992 and the National
Appliance Energy Conservation Act of 1987. I have testified before the
Committee several times and appreciate the opportunity to do so again.

Energy efficiency improvements have contributed a great deal to our
nation=s economic growth and increased standard of living over the past
30 years. Energy efficiency improvements since 1970 accounted for
approximately 75 quadrillion Btus of saved energy in 2005, which is
*about three-quarters of U.S. energy use and three times as much as
total energy supply growth over the same period.* In this sense, energy
efficiency can rightfully be called our country's largest energy
resource. If the United States had not dramatically reduced its energy
intensity over the past 30 years, consumers and businesses would have
spent about \$700 billion more on energy purchases in 2005.

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Energy efficiency has also become a major force in the economy in terms
of infrastructure investment. ACEEE ongoing research indicates that
total energy supply infrastructure investment in the United States in
2005 was approximately \$100 billion. Energy efficient technology
spending, from high-efficiency lighting to hybrid cars, was in the range
of \$200 billion in the same period. This means that America spends many
times more money on energy-using technology than on energy supply
technology. However, this remarkable truth is masked, by the fact that
efficiency is typically hidden inside our buildings, vehicles, and
factories in millions of products, components, and systems. Yet
collectively, these efficiency investments support a much larger
fraction of the economy than do all the energy supply sectors combined.

Even though the United States is much more energy-efficient today than
it was 30 years ago, there is still enormous potential for additional
cost-effective energy savings. Some newer energy efficiency technologies
have barely begun to be adopted. Other efficiency measures could be
developed and commercialized rapidly in coming years, with policy and
program support. For example, in a study from 2000, the Department of
Energy's national laboratories estimate that increasing energy
efficiency throughout the economy could cut national energy use by 10
percent or more in 2010 and about 20 percent in 2020, with net economic
benefits for consumers and businesses.[^1] Studies for many regions of
the country have found similar if not even greater opportunities for
cost-effective energy savings.[^2] A recent analysis by McKinsey Global
Institute found that U.S. energy demand growth through 2030 could be
fully met through cost-effective energy efficiency improvements. Our
ongoing research indicates that current estimates of \$200 billion in
annual spending on efficient technology could be doubled to \$400
billion, with strong public policies and increase private investment.

Unfortunately, a variety of market barriers keep energy efficiency
investment from being accelerated. These barriers fall in two main
categories: (1) principal-agent or "split incentive" barriers, in which,
for example, home builders must invest added capital in efficient homes,
but receive none of the energy savings benefits; and (2) transaction
costs, which stem from inability of average consumers or businesses to
make "economically optimum" decisions in time-and-information-limited
real world conditions. A recent ACEEE study for the International Energy
Agency found that, in the major residential and commercial end-use
markets in five countries, half or more of the energy used is affected
by these kinds of market barriers[^3]. This finding suggests that public
policies, beyond pricing policies, are needed to overcome such barriers.

In addition, basic forces in the economy work against the tendency of
higher energy prices to moderate energy demand. This principle of "price
elasticity of demand", while economically correct, is countered by
"income elasticity of demand", under which rising incomes cause
consumers to be less affected by rising prices. A large segment of our
population continues to buy low-mileage, high priced vehicles with
little concern for fuel costs. For less-affluent consumers,
"cross-elasticities" come into play that cause them to keep using energy
as an essential service, but to cut back on other goods and services to
balance their household budgets. Economists have documented the slowing
of retail sales among low-and moderate-income people in response to
rising energy prices. Both the income elasticity and cross-elasticity
effects suggest that energy prices alone won't balance our energy
markets, and we need stronger energy policies if we want to stabilize
energy markets without wrecking our economy.

Recent developments in our energy markets indicate that the U.S. needs
to *accelerate* efforts to implement energy efficiency improvements:

-   Oil, gasoline, natural gas and coal prices have risen substantially
    in recent years. For example, residential natural gas prices in 2005
    averaged \$13.83 per thousand cubic feet, up 61% from the average
    price three years earlier (prices averaged \$8.57 per thousand cubic
    feet in 2002).[^4] Likewise retail gasoline prices are up 87%
    relative to three years ago (\$2.917 per gallon 6/19/06 versus
    \$1.558 per gallon 6/16/03).[^5] Even more dramatically, Powder
    River Basin coal has more than doubled in price since three years
    ago (spot prices of \$13.80 per short ton in May, 2006, up from
    about \$6 per short ton in May, 2003).[^6] Energy efficiency can
    reduce demand for these fuels, reducing upward price pressure and
    also reducing fuel-price volatility, making it easier for businesses
    to plan their investments. Prices are determined by the interaction
    of supply and demand---if we seek to address supply and not demand,
    it's like entering a boxing match with one hand tied behind our
    back.

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-   A recent ACEEE analysis found that gas markets are so tight that if
    we could reduce gas demand by as little as 4% over the next five
    years, we could reduce wholesale natural gas prices by more than
    20%.[^7] This analysis was conducted by Energy and Environmental
    Analysis, Inc. using their North American Gas Market Model, the same
    analysis firm and computer model that was employed by DOE and the
    National Petroleum Council for their 2003 study on U.S. natural gas
    markets.[^8] These savings would put over \$100 billion back into
    the U.S. economy. Moreover, this investment would help bring back
    U.S. manufacturing jobs that have been lost to high gas prices and
    also help relieve the crushing burden of natural gas costs
    experienced by many households, including low-income households.
    Importantly, much of the gas savings in this analysis comes from
    electricity efficiency measures, because much of the marginal
    electric load is met by natural-gas fired power plants.

-   The U.S. is growing increasingly dependent on imported oil, with
    imports accounting for more than 60% of U.S. oil consumption in
    2005, of which more than 40% came from OPEC countries.[^9] The U.S.
    Energy Information Administration estimates that imports will
    account for 68% of U.S. oil use in 2020.[^10] While moderate amounts
    of new oil are available in hard-to-reach areas of the U.S., much
    greater amounts of oil are available by increasing the efficiency
    with which we use oil. A January 2006 report by ACEEE found that the
    U.S. can reduce oil use by as much as 5.3 million barrels per day in
    2020 through improved efficiency, including more than 2 million
    barrels per day in industry, buildings, heavy duty vehicles and
    airplanes.[^11] In other words, *there are substantial energy
    savings outside of the highly contentious area of light-duty vehicle
    fuel economy*. These 5.3 million barrels per day of oil savings are
    nearly as much as we presently import from OPEC (OPEC imports were
    5.5 million barrels per day in 2005).[^12] Energy efficiency can
    slow the growth in oil use, allowing a larger portion of our needs
    to be met from sources in the U.S. and friendly countries.

-   Economists have increasingly raised concerns that the U.S. economy
    is slowing and that robust growth rates we have experienced in
    recent years will not be sustained. Energy efficiency investments
    can help spur additional economic growth; they often have financial
    returns of 30% or more, helping to reduce operating costs and
    improve profitability. In addition, by reducing operating costs,
    efficiency investments free up funds to spend on other goods and
    services, creating what economists call the "multiplier effect", and
    helping the economy broadly. This stimulates new economic activity
    and job growth in the U.S., whereas most of every dollar we spend on
    oil flows overseas. A 1997 study found that due to this effect, an
    aggressive set of efficiency policies could add about 770,000 jobs
    to the U.S. economy by 2010.[^13]

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-   Overall, the U.S. has ample supplies of electricity at present, but
    demand is growing and several regions (such as southwest
    Connecticut, Texas, New York, and California) are projecting a need
    for new capacity in the next few years in order to maintain adequate
    reserve margins.[^14]^,^[^15] Energy efficiency resource policies
    can slow demand growth rates, postponing the date that additional
    capacity will be needed.

-   Greenhouse gas emissions continue to increase. Early signs of the
    impact of these changes are becoming apparent in Alaska and other
    Artic regions.[^16] And several recent papers have identified a link
    between warmer ocean temperatures and increased hurricane
    intensity.[^17]^,^[^18] Energy efficiency is the most cost-effective
    way to reduce these emissions, as efficiency investments generally
    pay for themselves with energy savings, providing negative-cost
    emissions reductions. The term "negative-cost" means that, because
    such efficiency investments produce net economic benefits, they
    achieve emission reductions at a net savings for the economy. This
    important point has been missed in much of the climate policy
    analysis modeling performed to date. Too many economic models are
    incapable of characterizing the real economic effects of efficiency
    investments, and so forecast inaccurate economic costs from climate
    policies. Fortunately, this kind of flawed policy analysis is
    beginning to be corrected. For example, a May 2006 study just
    released by ACEEE found that the Regional Greenhouse Gas Initiative
    (RGGI -- the planned cap and trade system for greenhouse gases in
    the northeastern U.S.) can have a small but positive impact on the
    regional economy provided increased energy-efficiency programs are a
    key part of implementation efforts.[^19]

Energy efficiency also draws broad popular support. For example, in a
March 2005 Gallup Poll, 61% of respondents said the U.S. should
emphasize "more conservation" versus only 28% who said we should
emphasize production (an additional 6.5% volunteered "both").[^20] In an
earlier May 2001 Gallup poll, when read a list of 11 actions to deal
with the energy situation, the top four actions (supported by 85--91% of
respondents) were "invest in new sources of energy," "mandate more
energy-efficient appliances," "mandate more energy-efficient new
buildings," and "mandate more energy-efficient cars." Options for
increasing energy supply and delivery generally received significantly
less support.[^21]

However, energy efficiency alone will not solve our energy problems.
Even with aggressive actions to promote energy efficiency, U.S. energy
consumption is likely to rise for more than a decade, and this growth,
combined with retirements of some aging facilities, will mean that some
new energy supplies and energy infrastructure will be needed. But
aggressive steps to promote energy efficiency will substantially cut our
energy supply and energy infrastructure problems, reducing the economic
cost, political controversy, and environmental impact of energy supply
enhancements.

**The Energy Policy Act of 2005**

The Energy Policy Act of 2005 (EPAct 2005) made some useful progress on
energy efficiency. Particularly notable were sections that established
new consensus federal efficiency standards on 16 products and that
created energy efficiency tax incentives. Other useful provisions
include extension of authority for Energy Saving Performance Contracts
in federal facilities and a variety of reports that hopefully will help
spur future policy action. For example, the EPAct 2005 provision
requiring DOE to submit a plan to Congress on steps it will take to
catch-up on overdue efficiency standard rulemakings was timed just right
and DOE has now prepared and begun to implement this plan. In addition,
a variety of promising initiatives were authorized in EPAct 2005, but to
have an impact, need to be followed by appropriations. Unfortunately,
most of the new provisions requiring funding have not been included in
the FY 2007 or 2008 budget requests nor in appropriations bills. Given
recent developments, such as the lack of funding for many of the EPAct
2005 provisions, ACEEE now estimates that the energy efficiency sections
of EPAct 2005 will reduce U.S. energy use by about 1.8 quadrillion Btu
("Quads") in 2020, reducing projected U.S. energy use in 2020 by 1.5%.
Of these savings, more than 75% will come from the two key provisions --
equipment efficiency standards and energy-efficiency tax
incentives.[^22]

EPAct 2005 overlooked two critical policy issues: energy efficiency
targets for the electricity sector and the oil sector. These two sectors
are critical for energy security and global warming, and efficiency
needs to be the first-priority policy in these areas. However, the final
bill did not include any specific oil or electricity saving targets,
even though the Senate version included an oil savings target and Senate
deliberations discussed setting utility energy efficiency targets. If
the United States is serious about addressing its energy security and
global warming problems, it must set specific and strong policies to
moderate demand growth for oil and electricity.

**Key Priorities for the Energy Efficiency Promotion Act**

ACEEE applauds the Committee for its timely and thorough approach in
bringing an energy efficiency bill forward. Our specific comments focus
in on those sections that we find to contain the greatest energy savings
potential, and that are important to supporting effective policy
implementation.

**Title I: Lighting technologies.** ACEEE supports the overall aims of
this section, and also recommends certain additions.

-   We support the reflector lamp standard contained in Section 102,
    which is based on a consensus agreement among ACEEE, manufacturers,
    and other stakeholders. Reflector lamps, increasingly common in
    recessed lighting fixtures in today's homes, represent a growing
    portion of the residential lighting market, and this standard will
    help moderate the impact of this end use

-   We also support the Sense of the Senate provision in Section 104,
    which we hope will soon lead to a consensus agreement on a national
    standard to phase out the least efficient general service light
    bulbs, of which more than a billion are sold each year, and pave the
    way for an eventual transition to dramatically more efficient light
    sources. ACEEE is working with the Alliance to Save Energy, the
    Natural Resources Defense Council, Philips Lighting, Osram Sylvania,
    General Electric, the American Lighting Association, and others to
    develop this agreement.

-   We also recommend a new section calling for a study and plan for
    reaching a higher tier of energy performance for general service
    lighting that will meet or exceed the performance of today's compact
    fluorescent products without compromise on light quality and with
    continued consumer choice in the market.

**Title II: Efficiency Standards.** This title contains consensus-based
standards for residential boilers, industrial electric motors, and
residential appliances, developed collaboratively among ACEEE,
manufacturers, and other stakeholders. It also contains several
provisions we support to improve the Department of Energy's ability to
set standards that will save more energy and better balance the needs of
states with federal authority.

-   Section 201 is designed to allow DOE to set standards which capture
    different aspects of a product's efficiency performance. For
    example, DOE determined it lacked administrative authority to adopt
    the consensus boiler standard contained in S.1115 because that
    proposal called for two prescriptive requirements and a minimum
    efficiency rating. Several other products are currently subject to
    multiple standard requirements including commercial clothes washers,
    ceiling fans and heat pumps. For some products, it makes better
    engineering, economic and energy-efficiency sense to establish a
    standard which may combine multiple performance and prescriptive
    elements. Our analysis is that this added flexibility in DOE's
    authority will save more energy and reduce costs.

-   Section 202 authorizes the Department of Energy to set regional
    standards for residential heating and cooling equipment. In our
    experience with rulemakings for central air conditioners and
    furnaces, DOE's professed inability to set regional standards has
    frustrated otherwise cost-effective standards from being proposed.
    DOE recognized this problem in its recent Notice of Proposed
    Rulemaking for residential furnaces, in which it invited states that
    need higher-performance furnaces to apply for waivers of pre-emption
    under the law. Several states have already moved in this direction.
    This section simply enables DOE to set regional standards directly,
    rather than relying on the cumbersome and uncertain process of
    waiver applications. A state-by-state waiver process will result in
    a patchwork of standards, whereas regional standards as allowed for
    in S. 2111 would result in no more than three large, contiguous
    regions. Since 1978 manufactured housing has been subject to very
    successful regional efficiency and other standards set by the
    Department of Housing and Urban Development. A similar system which
    relies on manufacturer labeling of products and state enforcement
    would work for climate sensitive appliances like central air
    conditioners and heating equipment. States routinely adopt federal
    minimum standards into building codes, providing an already in-place
    system of state-based enforcement..

-   Section 203 requires DOE to conduct a rulemaking to determine if
    standards for furnace fans are warranted. Congress authorized DOE to
    consider furnace fan energy saving standards in 2005, but the
    Department subsequently decided to not schedule a rulemaking. Given
    the Department's history of delays, we think it imperative that the
    Congress give DOE a hard deadline for action. We estimate that this
    rulemaking could offer very large energy and economic savings.

-   Section 204 would allow an expedited DOE standard rulemaking based
    on consensus agreements. While we agree with the Department on the
    desirability of this provision, we prefer the bill's language to an
    alternative version proposed by the Department. We believe the
    bill's current language better reflects due process and would
    expedite rules more effectively. We also remind the Committee that
    the DOE language was rejected by Congress in 2005.

-   Section 205 clarifies the intent of the law regarding federal
    pre-emption of state appliance efficiency standards. Federal law has
    struck a balance over the years between federal and state roles on
    appliance standards. While the general consensus is that federal
    states are preferable to a patchwork of state standards, states have
    also retained the right to advance standards for products not
    covered by federal law, and for covered products up to the effective
    date of the federal standard. History shows that state initiative
    has led to many of the advances in federal policy on appliance
    standards. In fact, it was state action on standards following the
    1982 DOE "no-standard standard" rule that ultimately led to the
    National Appliance Energy Conservation Act of 1987. Since then,
    state initiatives have helped to spur consensus agreements for
    federal standards on many other products. The language in this
    section simply clarifies key aspects of this federal-state
    relationship. We also recommend that the Committee consider language
    that would "sunset" pre-emption if the federal government fails to
    promulgate standards within Congressionally-prescribed timeframes,
    and that would require DOE to conduct new rulemakings on covered
    products within a defined period following the effective date of a
    given standard. We believe these additional provisions will keep
    U.S. appliance efficiency standards policy moving forward, while
    striking the right balance between federal and state roles. Given
    the increasing urgency of accelerating the pace of energy efficiency
    technology improvement, it is appropriate for Congress to ensure
    that federal appliance efficiency standards keep up with and support
    technology innovation.

-   Section 206 sets requirement for FTC Energy Guide labeling of
    consumer electronic equipment. We support this provision because, in
    our analyses, this class of products is the fastest-growing energy
    use American homes, and American consumers need energy use
    information to make informed choices on these products. A Natural
    Resources Defense Council report indicates that the largest
    televisions on the market today can use more energy than the average
    refrigerator[^23]. Coupled with other components in high-performance
    home entertainment systems, these products threaten to offset many
    of the energy savings the U.S. has achieved through its standards
    programs. Labeling these products, based on their full operating
    mode as well as on standby mode, is an important first step in
    addressing this problem.

-   Section 209 raises the minimum efficiency requirements for electric
    motors covered by the Energy Policy Act of 1992 to the highest *NEMA
    Premium* available in the marketplace. In addition, the proposal
    expands the scope of motors covered to include most of the
    industrial electric motors of 500 horsepower and lower. ACEEE
    participated with NEMA in reaching consensus on this proposal, and
    ACEEE feels that the provision provides a balance between the
    interest of motor users and the need for greater energy efficiency
    among a product that consumes over two-thirds of the industrial
    electricity in the country.

**Title III:** **Efficient Vehicles.** ACEEE generally concurs with the
priorities identified in this title for vehicle efficiency technology
research and deployment. Despite the downward trend of DOE funding for
research on lightweight materials for automotive applications in recent
years, we believe there is substantial remaining potential to improve
fuel economy through the use of such materials. Indeed, this is why we
and others worked to ensure that DOT's CAFE reform for light trucks did
not result in a system tying fuel economy requirements to vehicle
weight, which would have eliminated auto manufacturers' incentive to
incorporate lightweight materials into their products to raise corporate
fuel economy.

ACEEE supports the authorization of loan guarantees to facilities for
the manufacture of parts for fuel-efficient vehicles, as well as
incentives for manufacturers and suppliers to retool to produce advanced
technology vehicles. We note however that the discussion of advanced
lean burn technology should clarify that fuel economy for diesels is to
be compared with that of gasoline vehicles *on an energy-equivalent
basis*. Otherwise, the requirement that the vehicle have fuel economy at
least 125% of baseline fuel economy to qualify for the manufacturing
incentive becomes much more lenient for diesels (11-14% less stringent)
in terms of efficiency, due to the high Btu content of diesel fuel.
While its high energy density does lead to an additional
(non-efficiency) benefit for diesel in terms of petroleum reduction,
carbon emissions produced by diesel combustion are higher per gallon, so
that no climate benefits follow from high fuel density. It is important
to take this opportunity to begin to establish the principle that
petroleum reduction policies should support, not undermine, policies to
address climate change. This issue of gasoline-equivalence of diesel was
not properly resolved in the EPAct 2005 tax credits, despite Senate
intent; it has caused confusion in the implementation of the credits and
should be clarified through this bill.

We also support the allocation of resources to developing domestic
capability in energy storage for vehicles and to advancing electric
drive technologies. However, it should be noted that DOE has spent
hundreds of millions of dollars in the past (e.g. in the Partnership for
a New Generation of Vehicles) on technologies of this kind without
accelerating domestic manufacturers' production of vehicles that use
them. That experience demonstrates the importance of using R&D dollars
to support a policy of mandatory fuel economy increases, rather than as
a substitute for such a policy. Within the scope of this bill, we
suggest that part of the funding proposed in this section be used for a
competition for parts/automaker teams to produce a prototype plug-in
hybrid meeting certain performance and cost criteria (assuming large
volume production). This would help to ensure some real-world progress
on vehicle efficiency would follow from the proposed investment of over
\$400 million per year in battery/electric drive technologies.

**Title IV: National Energy Efficiency Goals.** While this title
contains non-binding goals, which we support, we also want to emphasize
the need to set binding national goals for energy efficiency. While
competitive markets will ultimately deliver the technologies and
practices to reach these goals, markets do best when they have clear and
simple targets to meet. We applaud the Committee for setting an energy
productivity goal for the nation; the 2.5% annual improvement represents
nearly a 50% improvement in current productivity growth, and would
sharply reduce energy demand growth overall.

We especially support the energy savings targets in section 401, though
we recommend that the fuel economy aspects of this section be more
specific. We note that the President's Twenty in Ten proposal, on which
the 2017 target for the section appears to be based, relies very heavily
on a loosely-defined set of alternative fuels, and only moderately
accelerates fuel economy improvement. While the feasibility of deploying
alternative fuels infrastructure is unproven, fuel economy technologies
and costs are well known, and therefore a greater emphasis on fuel
economy provides a better balance of risk for the nation. ACEEE
recommends that fuel economy targets be set so as to save at least 12
billion gallons of fuel in 2017, 45 billion gallons in 2025, and 68
billion gallons in 2030.

We also recommend that a new section be created that sets electricity
savings targets for distribution utilities, such that covered utilities
would be required to save 10% of electricity sales by 2020. Such Energy
Efficiency Resource Standard (EERS) are simple, market-based mechanisms
to encourage more efficient generation, transmission, and use of
electricity and natural gas. EERS-type laws and regulations are now in
operation in several states and countries. Texas's electricity
restructuring law created a requirement for electric utilities to offset
10% of their demand growth through end-use energy efficiency. Utilities
in Texas have already exceeded their targets there is discussion about
raising them. Hawaii and Nevada recently expanded their renewable
portfolio standards to include energy efficiency. Connecticut and
California have both established energy savings targets for utility
energy efficiency programs (Connecticut by law and California by
regulation) while Vermont has specific savings goals in the performance
contract with the nonprofit organization that runs statewide programs
under a contract with the Public Service Board. Pennsylvania's new
Advanced Energy Portfolio Standard includes end-use efficiency among
other clean energy resources. Colorado's largest utility has energy
savings goals as part of a settlement agreement approved by the Public
Service Commission. And Illinois and New Jersey are planning to begin
programs soon. EERS-like programs have been working well in the United
Kingdom and the Flemish region of Belgium. Italy has recently started a
program, and another is about to start in France. Details on each of
these programs are provided in a March 2006 ACEEE report.[^24]

While many EERS are separate from a renewable portfolio standard,
another option would be to combine renewable energy and energy
efficiency in a single portfolio standard. However, if this is done, the
portfolio target should be significantly higher than if only renewable
energy or if only energy efficiency were included. Specifically, a
combined RPS-EERS should not reduce any previously-set targets for
renewable energy generation. For example, a combined
efficiency/renewables target might be 15-20% of 2020 sales, which is a
higher target than the 10% of 2020 electricity sales that the Senate has
previously passed as a renewable portfolio standard.

**Title V:** **Federal Leadership.** ACEEE supports the provisions of
this title, especially the permanent authorization of the Energy Savings
Performance Contracting (ESPC) program, and the assessment of Combined
Heat and Power (CHP) opportunities at federal facilities. We recommend
that Congress place a special priority on installing CHP technology at
the Capitol powerplant, which could be accomplished through an ESPC or
similar vehicle.

**Title VI:** **State and Local Initiatives.** ACEEE supports the
provisions of this title, especially section 603's requirements for
utilities and states to include energy efficiency in resource planning,
and to reform ratemaking policies to make energy efficiency a better
business proposition for utilities. We recommend that the bill also
include Regional Transmission Organizations (RTOs) among the entities
covered by this section. This section should also be linked ultimately
to a federal Energy Efficiency Resource Standard (EERS) that sets
quantitative targets for energy savings for utilities, with the goal of
saving 10% of electricity sales by 2020. Sections 139 and 140 of EPAct
2005 called for a study and pilot program for EERS. The study is
complete, and shows that these policies are gaining acceptance and
enjoying success in a number of states. Given the increased urgency to
address carbon emissions from electric utilities, this should be a high
priority for Congress in 2007.

**Energy Savings**

ACEEE has estimated the energy and water savings from the appliance
standards provisions of the bill.

**Consensus standards.** The following standards are included based on
agreements between efficiency advocates and manufacturers. Annual
savings summarized below (at the level achieved when all equipment in
use complies).

-   Residential boilers -- 170 million therms natural gas per year, net
    present benefits of \$2.5 billion.

-   Incandescent reflector lamps -- 6 billion kilowatt hours per year,
    net present benefits of \$5 billion.

-   Clothes washer, dishwashers and dehumidifiers -- 560 million gallons
    of water per day; energy and dollar savings TBD

-   Motors -- 8 billion kilowatt hours per year, net present benefits of
    \$500 million

**New rulemakings.** The legislation provides for DOE rulemakings to set
standards for the following products. Potential energy savings from such
rulemakings (assuming appropriately strong DOE rules) are as follows:

-   Refrigerators -- 14 to 23 billion kilowatt hours per year, net
    present benefits TBD

-   Residential furnace fans -- 13 billion kilowatt hours per year;
    \$4.1 billion net present benefits

-   Clothes washers and dishwashers -- savings to be determined at a
    later date.

**Provisions to strengthen the appliance standards program.** Various
standards pending before U.S. DOE for rulemakings have the potential to
reduce energy consumption by nearly 200 billion kilowatt hours per year,
roughly the amount of power generated by 65 large power plants (500
megawatts each). The pending legislation does not directly affect most
of these rulemakings, but will enhance significantly the ability of DOE
to set appropriately strong standards. Provisions designed to provide
the Secretary of Energy greater flexibility in setting standards include
limited authority for regional standards for climate-sensitive products,
authority to use multiple efficiency metrics for a given product and
authority for expedited rules.

**Total potential savings:**

-   Electricity: At least 50 billion kilowatt hours per year, or enough
    to power roughly 4.8 million typical U.S. households

-   Natural gas: 170 million therms per year, or enough to heat about a
    quarter million typical US homes.

-   Water: At least 560 million gallons per day, or about 1.3% of total
    daily potable water usage.

-   Dollars: More than \$12 billion in net present benefits for
    consumers.

**Conclusion**

Energy efficiency is the "first fuel" in America's race for a clean and
secure energy future. Energy efficiency has saved consumers and
businesses trillions of dollars in the past three decades, including
more than half a trillion dollars in 2006 alone. These efforts should
now be accelerated to meet America's greatest energy challenges---energy
security and global warming. These twin problems are converging to force
historic changes in U.S. energy and environmental policy. Energy
efficiency is the one resource that addresses both the energy security
and climate challenges in the near term, while enhancing economic
prosperity. Domestic energy supplies with low carbon content will take
time to develop; but we can start now to accelerate efficiency
investment, which will enable low-carbon domestic supplies to begin
reducing energy imports and carbon emissions. If we do not use
efficiency as the "first fuel" in the race for clean and secure energy,
clean energy supply technologies may not be able to be deployed fast
enough to meet runaway demand.

ACEEE supports the Energy Efficiency Promotion Act as a major additional
step on the road to a sustainable energy future. We recommend a number
of ways that this bill can be augmented, within its existing provisions,
by adding new provisions, and through additional legislation.

This concludes my testimony. Thank you for the opportunity to present
these views. We look forward to responding to any questions or providing
any additional information that the committee may require to complete
this important legislation.

[^1]: Interlaboratory Working Group, 2000, *Scenarios for a Clean Energy
    Future*. Washington, D.C.: Interlaboratory Working Group on
    Energy-Efficient and Clean-Energy Technologies, U.S. Department of
    Energy, Office of Energy Efficiency and Renewable Energy.

[^2]: For a summary of many of these studies, see Nadel, Shipley and
    Elliott, 2004, *The Technical, Economic and Achievable Potential for
    Energy-Efficiency in the U.S. -- A Meta-Analysis of Recent Studies*.
    Washington, D.C.: American Council for an Energy-Efficient Economy.

[^3]: Prindle et al. 2007. *Quantifying Market Barriers in the End Use
    of Energy.* Draft report to the International Energy Agency.
    American Council for an Energy-Efficient Economy.

[^4]: Energy Information Administration, 2006, *Natural Gas Navigator:*
    *U.S. Natural Gas Residential Price.
    <http://tonto.eia.doe.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm> .
    Vis*ited June 20. Washington, D.C.: U.S. Dept. of Energy.

[^5]: Energy Information Administration, 2006, *Petroleum Navigator:*
    *U.S. All Grades All Formulatins Retail Gasoline Prices.
    <http://tonto.eia.doe.gov/dnav/pet/hist/mg_tt_usw.htm> . Vis*ited
    June 20. Washington, D.C.: U.S. Dept. of Energy.

[^6]: Energy Information Administration, 2006, *Coal News and Markets,
    Week of May 5, 2006.
    <http://www.eia.doe.gov/cneaf/coal/page/coalnews/coalmar.html#spot>*
    . Washington, D.C.: U.S. Dept. of Energy.

[^7]: Elliott and Shipley, 2005, *Impacts of Energy Efficiency and
    Renewable Energy on Natural Gas Markets: Updated and Expanded
    Analysis.* http://www.aceee.org/pubs/e052full.pdf. Washington, D.C.:
    American Council for an Energy-Efficient Economy.

[^8]: National Petroleum Commission. 2003, *Balancing Natural Gas
    Policy---Fueling the Demands of a Growing Economy: Volume I Summary
    of Findings and Recommendations*. Washington, D.C.: U.S. Department
    of Energy.

[^9]: Energy Information Administration, 2006, *Monthly Energy Review
    May 2006.* Washington, DC: U.S. Dept. of Energy.

[^10]: Energy Information Administration, 2006, *Annual Energy Outlook.*
    Washington, D.C.: U.S. Department of Energy.

[^11]: Elliott, Langer and Nadel, 2006, *Reducing Oil Use Through Energy
    Efficiency: Opportunities Beyond Cars and Light Trucks.* Washington,
    DC:. American Council for an Energy-Efficient Economy.

[^12]: See note #9.

[^13]: Alliance to Save Energy et al., 1997, *Energy Innovations: A
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    Council for an Energy-Efficient Economy.

[^14]: North American Electric Reliability Council, 2005, *2005
    Long-Term Reliability Assessment: The Reliability of Bulk Electric
    Systems in North America.* Princeton, N.J.: North American Electric
    Reliability Council.

[^15]: New York Independent System Operator, 2005, "The NYISO Issues
    Reliability Needs Assessment." Press release of December 21.
    Schenectady, N.Y.: New York Independent System Operator.

[^16]: Hassol, 2004, *Impacts of a Warming Arctic: Arctic Climate Impact
    Assessment.* [http://www.acia.uaf.edu](http://www.acia.uaf.edu/).
    Cambridge University Press.

[^17]: Webster, Holland, Curry and Chang, 2005, "Changes in Tropical
    Cyclone Number, Duration, and Intensity in a Warming Environment."
    *Science,* 309, 16 September, 1844--1846.

[^18]: Emanuel, 2005, "Increasing Destructiveness of Tropical Cyclones
    over the Past 30 Years." *Nature,* 436, 4 August, 686--688.

[^19]: Prindle, Shipley and Elliott, 2006, *Energy Efficiency's Role in
    a Carbon Cap-and-Trade System: Modeling Results from the Regional
    Greenhouse Gas Initiative.* Washington, DC: American Council for an
    Energy-Efficient Economy.

[^20]: Gallop, 2005, "Gallop Poll Social Series---The Environment."
    Princeton, N.J.: The Gallop Organization.

[^21]: Moore, David, 2001, AEnergy Crisis: Americans Lean toward
    Conservation over Production.@ Princeton, N.J.: The Gallup
    Organization.

[^22]: Nadel, Prindle and Brooks, 2006, "The Energy Policy Act of 2005:
    Energy Efficiency Provisions and Implications for Future Policy
    Efforts" in *Proceedings of the 2006 ACEEE Summer Study on
    Energy-Efficiency in Buildings.* Washington, DC: American Council
    for an Energy-Efficient Economy.

[^23]: Horowitz, Noah et al. 2005. *Televisions: Active Mode Energy Use
    and Opportunities for Energy Savings.* Natural Resources Defense
    Council Issue Paper, 2005.

[^24]: Nadel, 2006, *Energy Efficiency Resource Standards: Experience
    and Recommendations.* Washington, D.C.: American Council for an
    Energy-Efficient Economy.