Technical Report

NREL/TP-6A2-46532

December 2009

Energy Efficiency Policy in 

the United States: Overview of 

Trends at Different Levels of 

Government

Elizabeth Doris, Jaquelin Cochran, and 

Martin Vorum 
National Renewable Energy Laboratory

1617 Cole Boulevard, Golden, Colorado 80401-3393

303-275-3000 • www.nrel.gov

NREL is a national laboratory of the U.S. Department of Energy

Office of Energy Efficiency and Renewable Energy

Operated by the Alliance for Sustainable Energy, LLC

Contract No. DE-AC36-08-GO28308

Technical Report

NREL/TP-6A2-46532

December 2009

Energy Efficiency Policy in 

the United States: Overview of 

Trends at Different Levels of 

Government

Elizabeth Doris, Jaquelin Cochran, and 

Martin Vorum

Prepared under Task No. IGIN.7500
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iii

Abstract

This report catalogs by sector—buildings, transportation, industrial, and power—energy efficiency 

policies at the federal, state, and local levels, and identifies some prominent policy trends. Four key 

findings emerged from this report: 1) leadership on energy efficiency is necessary—and is found—at each 

level of government; 2) there is no widely accepted methodology for evaluating energy efficiency 

policies; 3) coordination among the three levels of government—and across sectors—is increasingly 

important, and there are opportunities to significantly improve policy performance through a unified 

strategy; and 4) there are efficiencies to be gained by informing policies in one sector with experience 

from others.

Acknowledgments

This work is made possible by the U.S. Department of Energy. For their review of this report, the authors 

wish to thank John Barnett, Ron Benioff, Misty Conrad, David Kline, Jeff Logan, and Todd Ramsden of 

NREL; Mirium Pye of NYSERDA; and Bond Calloway, Dennis Griffith, and an anonymous reviewer 

from the American Institute of Chemical Engineers. We are also thankful for the technical editing of Julie 

Tuttle in NREL’s Communications Office. Any remaining errors, of course, are the responsibility of the 

authors. 
iv

Acronyms and Abbreviations

ARRA 2009 American Recovery and Reinvestment Act of 2009

ACEEE American Council for an Energy-Efficient Economy

AFV alternative-fuel vehicles

ASHRAE American Society of Heating, Refrigerating, and Air Conditioning 

Engineering

ATV advanced technology vehicle

BETC Business Energy Tax Credit

BTU British thermal unit

CAFE Corporate Average Fuel Economy

DOE U.S. Department of Energy

DSIRE Database of State Incentives for Renewables and Efficiency

EISA 2007 Energy Independence and Security Act

EPA U.S. Environmental Protection Agency

EPAct05 Energy Policy Act (II) 

EPAct92 Energy Policy Act (I) 

EPCA Energy Policy and Conservation Act

FEMP Federal Energy Management Program

GDP gross domestic product

GGE gallons of gasoline equivalents

HEV hybrid electric vehicle

HOV high occupancy vehicle

HTS high-temperature superconductivity

HVAC heating, ventilation, and air conditioning

IAC Department of Energy Industrial Assessment Centers

IECC International Energy Conservation Code

IOU investor-owned utility

LEED Leadership in Energy and Environmental Design

mpg miles per gallon

MWh megawatt-hours

NAECA National Appliance Energy Conservation Act 

NECPA National Energy Conservation and Policy Act 

NHTSA National Highway Traffic Safety Administration

PBF public benefits funds

PURPA Public Utility Regulatory Act of 1978

R&D research and development

REAP U.S. Department of Agriculture’s Rural Energy for America Program

SBC systems benefit charge

SEP State Energy Program

SMUD Sacramento Municipal Utility District

USDA United States Department of Agriculture

VALE Voluntary Airport Low Emission

WAP Weatherization Assistance Program
v

Executive Summary

The benefits of energy efficiency are manifold—lower energy bills, improved air quality, reduced 

greenhouse gases, increased energy security, and a deferred need to invest in new infrastructure. 

Numerous studies document the prevalence of economically attractive, energy-saving opportunities that 

have yet to be widely adopted (McKinsey 2009, APS 2008, IEA 2009, IPCC 2007, Gigaton Throwdown 

2009, UNEP 2007, WBCSD 2009). The failure to implement these opportunities indicates persistent 

market and other barriers to efficiency. Government policies should be designed to target these barriers 

and enable the benefits of energy efficiency to be realized. 

This report catalogues by sector—buildings, transportation, industrial, and power—energy efficiency 

policies at the federal, state, and local levels, and, where discernable, identifies policy trends. Four key 

findings emerged from this report:

1. Leadership on energy efficiency is necessary—and is found—at each level of government.

Policies initiated at state and local levels, within diverse political and economic contexts, can inform 

how similar policies can be employed and scaled-up in other places and jurisdictions. California, for 

example, has repeatedly designed efficiency programs that have served as models elsewhere. Federal 

leadership is also key, not only for the benefit of consumers and manufacturers, but also to provide 

the impetus for the country as a whole to realize its energy efficiency potential—to improve the 

economy, environment, and national security.

2. There is no widely accepted methodology for evaluating energy efficiency policies.

Measuring policy impact is critical for evaluating the effectiveness of policies at all levels of 

government. But such measurement is difficult due to the overlapping nature of policy 

implementation, the lack of coordination of intended impacts, and the challenge of calculating and 

attributing whether actual energy savings result from a particular policy. 

3. Coordination among the three levels of government—and across sectors—is increasingly important, 

and there are opportunities to significantly improve policy performance through a unified strategy.

There is currently no comprehensive policy strategy for energy efficiency in the United States. 

Policies are conceived within narrow political constraints based on some specific need, and without a 

thorough consideration of the policies’ interaction with other policies. A strategic approach to 

improving energy efficiency in the United States would coordinate efforts across jurisdictions and 

sectors, as occurred under the National Action Plan for Energy Efficiency.

4. There are efficiencies to be gained by informing policies in one sector with experience from others.

In each sector, similar energy policy tools are employed—baseline standards, beyond-baseline 

incentives, labeling, technical assistance, and public leadership—but the relative use of each tool 

within overall policy varies significantly by sector. These differences reflect a number of factors, 

including the relative strengths of governing jurisdictions, political expediency, and technological and 

economic limitations. A more effective policy approach would find ways to move beyond these 

established constraints toward a comprehensive assessment of energy efficiency barriers and the 

policies needed to address them.
vi

Table of Contents

Abstract........................................................................................................................................................iii

Acknowledgments........................................................................................................................................iii

Acronyms and Abbreviations ......................................................................................................................iv

Executive Summary ...................................................................................................................................... v

Table of Contents......................................................................................................................................... vi

Table of Tables and Figures........................................................................................................................vii

1 Introduction: The Role of Jurisdiction Level in Targeting Energy Efficiency Improvements............. 1

2 Buildings.............................................................................................................................................. 5

2.1 Building codes............................................................................................................................. 7

2.2 Appliance Standards.................................................................................................................. 12

2.3 Labeling and Education............................................................................................................. 14

2.4 Financial Incentives................................................................................................................... 14

2.5 Research and Development ....................................................................................................... 19

3 Transportation Sector......................................................................................................................... 20

3.1 Fuel Efficiency Standards.......................................................................................................... 21

3.2 Labeling and Consumer Education............................................................................................ 24

3.3 Incentives................................................................................................................................... 24

3.4 Technical Assistance ................................................................................................................. 26

3.5 Urban Planning and Behavior Change ...................................................................................... 28

3.6 Research and Development ....................................................................................................... 29

4 Industrial Sector ................................................................................................................................. 30

4.1 Incentives................................................................................................................................... 30

4.2 Technical Assistance ................................................................................................................. 33

4.3 Research and Development ....................................................................................................... 34

5 Power Sector ...................................................................................................................................... 35

5.1 Incentives................................................................................................................................... 36

5.2 Research and Development ....................................................................................................... 41

6 Discussion: Trends in Energy Efficiency Policy Development ......................................................... 42

Appendix A: Statewide Building Code Status................................................................................... 44

Appendix B: State Incentives and Regulations in the Transportation Sector..................................... 46

References................................................................................................................................................... 50
vii

Table of Tables and Figures

Table 1: Strengths and Challenges to Legislating and Regulating Energy Efficiency 

at Each Jurisdictional Level.......................................................................................................... 1

Table 2: Prominent Jurisdictional Drivers.................................................................................................. 3

Table 3: Map of Building Code Policies to Jurisdiction............................................................................. 6

Table 4: Summary of Local Government (County, City, Township) Requirements

for LEED Certification (Encouragement or Requirement)......................................................... 10

Table 5: Summary of Local Government (County, City, Township) Incentives 

for LEED Certification ............................................................................................................... 10

Table 6: Legislation Relating to Federal Standard Setting for Energy Efficiency ................................... 12

Table 7: Non-R&D Financial Incentives for Energy Efficiency by Sector 

Type and Date of Availability .................................................................................................... 16

Table 8: State Public Benefit Funds with Effective Dates and Estimated Funding.................................. 17

Table 9: Map of Transportation Policies to Jurisdiction........................................................................... 21

Table 10: Federal Efficiency Standards, Including Lead by Example Fleet Purchasing Requirements..... 22

Table 11: Federal Tax Incentives Related to Energy in the Transportation Sector .................................... 25

Table 12: Federal Technical Assistance Programs in the Transportation Sector........................................ 27

Table 13: Map of Industrial Energy Efficiency Policies to Jurisdiction..................................................... 30

Table 14: States with Industrial Sector Incentives...................................................................................... 31

Table 15: Program Funding with Industry Applicability............................................................................ 32

Table 16: Map of Utility-based Energy Efficiency Policies by Jurisdiction .............................................. 35

Table 17: Federal Regulations related to Energy in the Power Sector ....................................................... 39

Figure 1: Energy Intensity Indicator by Sector 1985-200 (Source: EERE 2009b)...................................... 4

Figure 2: California per capita electricity consumption relative.................................................................. 7

Figure 3: Residential Energy Code Status (July 2009) ................................................................................ 8

Figure 4: Commercial Energy Code Status (July 2009)............................................................................... 9

Figure 5: California's annual energy savings from efficiency programs and 

standards (Source: Rosenfeld 2008)........................................................................................... 11

Figure 6: Impact of national and state appliance standards on energy....................................................... 13

Figure 7: Electric Decoupling Activities in the United States as of May 2009 ......................................... 40
1

1 Introduction: The Role of Jurisdiction Level in Targeting 

Energy Efficiency Improvements

The benefits of energy efficiency are manifold—lower energy bills, improved air quality, reduced 

greenhouse gases, energy security, and deferred infrastructure costs. Numerous studies document the 

prevalence of economically attractive opportunities for energy savings (McKinsey 2009, APS 2008, IEA 

2009, IPCC 2007, Gigaton Throwdown 2009, UNEP 2007, WBCSD 2009). The failure to implement 

these opportunities indicates persistent market and other barriers to efficiency. Government policies are 

designed to target these barriers and enable the benefits of energy efficiency to be realized. In the United 

States, energy efficiency policies reflect the interplay of federal, state, and local jurisdictional levels. 

Because jurisdictional policies may have overlapping effects, a better understanding of the relative 

strengths and policy drivers of each can guide the development of future policy. 

Legislative and Regulatory Strengths

Table 1 summarizes the relative strengths and challenges of legislating and regulating energy efficiency at 

each jurisdictional level. The main strength at the federal level is scale. Through its large scale, the 

federal government can offer efficiency incentives early in the commercialization process and across the 

national market that can be highly leveraged for maximum impact. The federal government can also set 

uniform standards, e.g., for appliances and vehicles. This minimizes the regulatory burden of fulfilling 

different state-level mandates while maximizing the policy’s potential impact on national energy demand. 

Finally, the federal government can cultivate specialized technical assistance to help state and local 

governments and private industries identify and implement energy-efficiency policies Despite these 

strengths, there is a danger in federal policy over-regulating—thereby constricting market growth—and 

undermining the ability of state and local jurisdictions to be responsive to their own circumstances.

Table 1: Strengths and Challenges to Legislating and Regulating Energy Efficiency at Each 

Jurisdictional Level

Jurisdiction 

Level Strengths Challenges

Federal

• Broad, large-scale incentives

• Uniform standards

• Specialized technical 

assistance

• Cross-state utility regulation 

• Public leadership 

• Potential for over regulation constricting the 

market

• Limited ability to tailor policies

State

• Tailored to state need

• Primary in-state utility 

regulation

• Public leadership

• Funding limited

• Limited geographic influence

Local

• Tailored to local community 

need

• Public leadership

• Funding limited

• Limited geographic influence

At the state level, one of the strengths of energy-efficiency policy is its ability to offer broad-impact, yet 

more finely tailored mandates and incentives. For example, most states regulate building codes, allowing 

factors like climate, economics, and power supply to affect code design, while still retaining the energyreduction benefits of code uniformity. States also use customized incentives to attract and therefore 

support industries in emerging markets, such as green technologies (Lantz 2009).

Finally, states have jurisdiction over most utilities, allowing them—in the public interest of optimizing 

electricity resources—to constrain growth in electricity supply through demand side management. This 

can help create statewide dedicated energy-efficiency funds, called public benefits funds (PBF) or system 
2

benefit charges (SBC). These PBFs, derived from utility bills, offer stability to state funding of energy 

efficiency and demonstrate a state commitment to energy efficiency as a resource, which can in turn 

reduce long-term risks to private-sector investors in efficient technologies.

Local governments are constrained by their more limited geographic jurisdiction and smaller budgets, but 

are able to fine-tune policies to the specific needs of the community. For example, most localities have 

jurisdiction over zoning, planning, and building permits, and can directly impact and respond to the needs 

and environment of local residents and businesses. Local governments also remain key partners in the 

implementation of federal and state efficiency policies. Because of their direct knowledge and access to 

community-level input, local governments have a relative advantage in implementing certain federal and 

state mandates, e.g., rerouting school bus routes to reduce engine idling.

The primary area of overlap where all levels of government are well positioned to promote energy 

efficiency and expand the market for efficient technologies is to lead by example through specific 

programs, acquisition practices, and public advocacy. Establishing aggressive efficiency standards for 

buildings and vehicles not only saves energy within each jurisdiction, but also establishes a market for 

emerging technologies and educates the public about the existence and benefits of these efficient 

technologies.

Policy Drivers

The key policy drivers for energy efficiency—economic development, environment, energy security—

transcend jurisdictional level but vary in their manifestation (Table 2). For example, all three levels of 

government work to improve air quality, but they address this concern in different ways. Similarly, 

energy security is a goal at each jurisdictional level, but while the federal government focuses on vehicle 

efficiency, local governments are more likely to promote fuel diversity. At each jurisdictional level there

is an inherent tension between leveraging investment and tailoring policy—a trade-off that helps to shape 

each jurisdiction’s approach to policy design. 

There is a consonance among policy goals at all three levels, with each jurisdiction focusing its operations 

on its own unique geographical scope. Understanding how the policies interact and can contribute to a 

comprehensive efficiency policy is critical to developing a plan to reduce energy consumption. This 

report provides a sector-by-sector review of historical and current policies, with a specific focus on how 

each jurisdiction adapts general policy tools (e.g., standards, financial incentives) to reflect its relative 

strengths and policy focus. 

Challenges in Measuring Policy Impact

Measuring policy impact is critical for evaluating the effectiveness of policies at different jurisdictional 

levels. This is difficult due to the overlapping nature of policy implementation, the lack of coordination of 

intended impacts, and the challenge of calculating and attributing energy savings to a particular policy. 

Additionally, some policies that result in energy savings are primarily targeted at economic development, 

e.g., rebates for energy efficient appliances or vehicles that are designed to drive retail sales and boost 

manufacturing. The policy impacts may be measured against the economic goals (e.g., number of 

appliances sold), rather than energy savings. 

A further complication in accurately measuring policy impact is changes in energy use that result from 

non-policy factors, e.g., economic context, weather, and technological advancement. Separating these 

ancillary impacts from the effectiveness of the policy requires an extensive understanding of the economy 

and weather systems, and often must be done in retrospect, when the policy can be evaluated under a 

variety of different contexts. Because most individual policies are responsible for only a small fraction of 
3

changes in energy efficiency, and are not planned with funding for extensive evaluation, very few reviews 

of this nature are available.1

Table 2: Prominent Jurisdictional Drivers

Jurisdiction Drivers

Ability to 

leverage 

investment

Ability to 

tailor policy

Federal

Economic Development

• Support broad economic growth

Environmental Protection

• Protect public health

• Reduce carbon emissions

Energy Security

• Reduce dependence on oil

• Maintain reliability of grid infrastructure

High Low

State 

Economic Development

• Attract jobs and industry

• Improve power-supply reliability 

• Reduce need for large-scale capital 

investments in power supply

• Reduce consumer energy bills

Environmental Protection

• Improve regional air quality 

• Reduce carbon emissions

Energy Security

• Fuel diversity (electric and transport)

• Price stability

Medium Medium

Local

Economic Development

• Foster local economic development

• Reduce traffic

Environmental Protection

• Improve local air quality

Energy Security

• Fuel diversity (electric and transport)

Low High

Source: Brown and Mosey 2008

In aggregate, energy efficiency improvements are measured through changes in energy intensity in each 

sector, which is total U.S. energy consumption per dollar of gross domestic product (GDP). In this 

method, lower energy intensity is equated to improved energy efficiency.2

 1 A forthcoming National Academy of Sciences study reviews impacts of energy efficiency policies on energy 

consumption, but no widely accepted methodology is consistently applied to efficiency policy evaluations.

The method does not attempt 

to measure policy impacts, but instead reflects changes in energy use relative to changes in the economy. 

Since 1985, energy intensity in the United States has decreased, representing both structural changes and 

2 Lower energy intensity does not necessarily equal reductions in energy use.
4

an increasingly energy efficient economy (Figure 1). This metric, however, is general, and does not 

identify the sources of the increased efficiency. 3 The strength of energy intensity data, however, is that it 

accounts for both economic development and energy reductions.

Figure 1: Energy Intensity Indicator by Sector 1985-200 (Source: EERE 2009b)

At state and local levels, policies are evaluated to the extent that jurisdictions have the interest and 

financial capability to do so. These evaluations are generally focused on the ancillary benefits of energy 

savings, e.g., job creation, electricity prices, and environmental impacts. Typically, modeled energy 

savings (as opposed to actual savings) are the basis for these evaluations. While these evaluations of 

investment effectiveness are of high value to the jurisdiction, aggregating the impact of these policies on 

energy use and intensity at the national level is not possible through such diverse methodologies.4

In each of the sector descriptions, evaluations are presented where available and applicable, recognizing 

that currently there is no widely accepted methodology for evaluating programs across policies and 

jurisdictions. 

 3 Likewise, energy consumption per capita is another broad, but crude, measurement of efficiency. 4 Developing a regional- or national-scale energy savings model would facilitate evaluation of the large-scale energy 

efficiency benefits of local and state programs.
5

2 Buildings

Buildings consume 40% of U.S. primary energy, including 72% of U.S. electricity consumption and 36% 

of natural gas consumption (EERE 2008). The building sector drives the growth for new power plants—

87% of the growth in electricity sales between 1985 and 2006 is attributable to building sector demand 

(Ibid). Successfully implementing legislation that targets building design and appliance performance can 

directly reduce this demand. To increase the use of energy-efficient technologies in buildings, the five 

policy types most frequently employed are: 

1. Building codes, which, by addressing design, affect long-term energy demands

2. Appliance standards, which mandate minimum levels of efficiency of appliances

3. Labels and consumer information, which provide consumers information on long-term energy 

consumption of appliances and buildings

4. Incentives, both financial and non-financial, which include programs such as tax credits and 

expedited permitting for efficient buildings

5. Research and development, e.g., on technologies needed to achieve cost-competitive zero-energy 

buildings.

An overarching characterization of these policies is that of market transformation, defined as permanent 

success of energy efficiency technologies in the marketplace. Strategies to achieve market transformation 

encompass two primary categories that contribute to opening, and then expanding markets for energy 

efficiency (Brown and Busche 2008, Geller and Nadel 1994).

• Barrier Reduction (also called standard setting and mandates, or “push”). Policies that remove 

barriers to energy efficiency include those that raise performance standards and create uniform 

criteria for adopting new technologies. Uniform criteria help streamline regulatory approval. Energy 

efficiency policies included in this category are building codes and equipment standards. 

• Technology Accessibility (also called financial and non-financial incentives or “pull”). This policy 

type aims to reduce initial procurement and installation costs, thereby making energy-efficient 

products, which already have lower lifetime energy costs, the cost-effective choice. Policies of this 

type include rebates, subsidies, tax incentives, and grants. 

A subset of both of these policy types is to lead by example, where governments apply barrier reduction 

and technology accessibility policies to public activities and infrastructure within their jurisdiction. This 

type of public leadership allows governments to reap available energy cost savings and, more 

significantly for market transformation, reduce the private sector risk of investment in new efficient 

technologies (see Text Box 1).

Building efficiency policies historically map to different jurisdictions in the United States (See Table 3). 

The federal government creates nationwide appliance standards, providing uniformity for manufacturers 

and thereby reducing the burden of providing different equipment for each state market. The federal 

government also provides large-scale financial incentives early in the commercialization process, 

widespread education through labeling, and support for research and development.
6

Most state governments have authority 

over the design of building codes, although 

until recently this was the domain of 

localities. With jurisdiction over electric 

utilities, many state governments also 

provide financial incentives as part of 

demand-side management programs, and 

some states set standards for appliances 

not governed by federal legislation. 

Finally, local jurisdiction primarily focuses 

on building code enforcement, and, in 

some states, building code design.5 Some 

local governments also influence 

efficiency by offering incentives to 

developers, such as expedited permitting 

for efficient buildings, and by modeling 

efficiency in municipal buildings. Some 

local governments also offer financial 

incentives for energy efficiency, such as 

appliance rebates.

Table 3: Map of Building Code Policies to Jurisdiction

Federal State Local

Barrier Reduction

Building code design No6 Most Some

Building code enforcement No Some All

Appliance standards Yes Some None

Labeling Yes None7 None

Public leadership Yes Most Most

Technology Accessibility

Incentives (Multiple kinds) Yes Some Some

Research and Development Yes Some None

Most recently, with the passage of the American Recovery and Reinvestment Act of 2009 (ARRA) and 

the consideration of the American Clean Energy and Security Act of 2009, the federal government has 

expanded its activities in building code design and financial incentives in the buildings sector. While 

these policies are too new to estimate their long-term impact, it is certain that expanding the federal role 

in this sector will affect the focus and priorities of all jurisdictions.

The following sections address the policy types in more detail.

 5 Design at the local level usually entails adopting building codes written by third-party organizations, with minor 

adjustments—unrelated to energy efficiency—specific to the locality. Although locally-selected, the widespread 

adoption of such codes gives them a national scope.

6 The federal government provides research to help strengthen and suggest building codes, but currently does not 

require adoption of a national code.

7 In the past a handful of states have had labeling programs for energy efficiency, like the now defunct tumblewash 

program in the Northwest.

Text Box 1

Federal Energy Management Program

The Energy Policy Act of 2005, expanded under the 

Energy Independence and Security Act of 2007, requires 

that all existing and new federal buildings lead by 

example. Existing buildings must reduce energy 

consumption 30% by 2015, compared with 2003 levels, 

through building upgrades and efficient appliances. New 

buildings must achieve efficiencies of 30% better than 

ASHRAE and IECC codes. 

The Federal Energy Management Program (FEMP) 

assists federal agencies in meeting these goals. FEMP 

helps federal agencies identify and engage sources of 

financing for efficiency upgrades, such as Energy Savings 

Performance Contracts, Utility Energy Service Contracts, 

and federal and state incentive programs. FEMP also 

offers energy audits and guidance for equipment 

purchases.
7

2.1 Building codes

Codes help occupants save energy and money over a building’s lifetime by regulating aspects of the 

building envelope,8

2.1.1 Policy Evolution

lighting, and heating, ventilation, and air conditioning (HVAC) system. Building 

codes are an essential part of government efforts to transform the long-term market for energy efficiency. 

The next section investigates the role of building codes in each jurisdiction, and policies that support 

governments to lead by example.

Building codes fall primarily within state and local jurisdiction, and consequently vary widely across the 

United States to meet the needs and climates of different regions. States that allow jurisdiction to remain 

at the local level require local codes to exceed a statewide minimum. Some states that do have statewide 

mandates use strict codes to aggressively reduce energy demand. In California for example, per capita 

building-related energy demand has remained uniquely stable over the last three decades, after passage in 

the 1970s of both a statewide building code and appliance standards (see Figure 2).

Figure 2: California per capita electricity consumption relative

to the rest of the United States (Source: Rosenfeld 2008)

The U.S. federal government does not have direct jurisdiction over building codes, although since 1977 

the government has contributed to the development of model codes and requires that states consider

adopting them. The federal government also provides states with technical assistance in adopting, 

implementing, and enforcing building codes. The 2009 ARRA offers a financial incentive to states that 

adopt the latest model building codes.

 8 The building envelope is the outer shell of the building that separates the indoor and outdoor environments.

Per Capita Electricity Sales (not including self-generation)

(kWh/person) (2006 to 2008 are forecast data)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1960196219641966196819701972197419761978198019821984198619881990199219941996199820002002200420062008

United States

California

Per Capita Income in Constant 2000 $

1975 2005 % change

US GDP/capita 16,241 31,442 94%

Cal GSP/capita 18,760 33,536 79%

 2005 Differences

 = 5,300kWh/yr

 = $165/capita
8

Because buildings contribute 40% of U.S. carbon emissions due to fossil fuel-based heating and 

electricity (EERE 2008), the American Clean Energy and Security Act of 2009 currently before Congress 

mandates the creation of a national energy efficiency building code and a financial penalty if states and 

local governments do not adopt codes that meet or exceed this threshold. Although the federal 

government will not require states to comply with and enforce a national code, the legislation withholds 

federal funding and carbon-emission allowances if states and local governments do not comply. 

State Jurisdiction

Most states have adopted codes based on model codes developed by the International Energy 

Conservation Code (IECC) and the American Society of Heating, Refrigerating and Air Conditioning 

Engineers (ASHRAE). The stringency of the codes adopted depends on the states’ climate and regulatory 

environments and the relative strengths and interests of local stakeholders.

Thirty-five states mandate residential codes (Figure 3) and thirty-six mandate commercial codes (Figure 

4) including 21 that share the most stringent version in practice (BCAP 2009). Five states and the District 

of Columbia have plans to increase the stringency in building codes (Ibid.). In addition to phasing in new 

performance standards over time, thereby allowing for industry and retail markets to adjust to the 

changes, these minimum standards can stimulate expanded markets for efficient building materials. This,

in turn, can enable industry to capture cost reductions resulting from production economies of scale.

Figure 3: Residential Energy Code Status (July 2009)
9

Figure 4: Commercial Energy Code Status (July 2009)

Appendix A lists the status of commercial and residential building codes in all states and Washington, 

D.C.

Local governments have jurisdiction over building codes in four regards:

Local Jurisdiction

• Establishing codes, unless pre-empted by state codes (and, in limited cases, more strictly than state 

codes), 

• Enforcing codes,

• Leading by example, and

• Promoting high efficiency certification of public and private buildings, typically through the U.S. 

Green Building Council’s Leadership in Energy and Environmental Design (LEED) program.

In states without mandatory building codes, local governments can establish codes. For example, Illinois 

has a statewide commercial building code, but most localities establish their own residential codes. Many 

Illinois counties have adopted IECC 2003, some have adopted IECC 2006, and still others have codes that 

date back to IECC 2000 and 1998.

One of the most critical activities in ensuring energy savings resulting from building codes is local 

enforcement. Each jurisdiction varies in its procedures for enforcing compliance, including training and 

resources available to code officials.
10

Local jurisdictions can also strengthen the market for energy efficiency by encouraging (through 

suggestion or financial incentive) or mandating high performance buildings, for example through LEED 

Certification.9

Table 5

One hundred thirty jurisdictions require that government-owned or supported buildings be 

LEED certified, and a few even mandate LEED certification for new private buildings. Since local 

jurisdictions have little regulatory power over the private sector, a more popular option than mandating is 

to encourage certification through financial and non-financial incentives (Table 4). summarizes 

the number of communities, by size, offering incentives for LEED certification.

Table 4: Summary of Local Government (County, City, Township) Requirements for LEED 

Certification (Encouragement or Requirement)

Jurisdiction 

Population

Government-owned or Supported Private (New)

Encouraged Required Encouraged Required

0-25,000 3 15 7 8

25,001-75,000 2 28 3 17

75,001-125,000 3 9 4 1

125,001-200,000 1 15 4 4

200,001+ 5 63 20 10

Total 14 130 48 30

Source: USGBC 2009

Table 5: Summary of Local Government (County, City, Township) Incentives for LEED Certification

Jurisdiction Population Government-owned or 

Supported Private (New)

0-25,000 1 3

25,001-75,000 1 3

75,001-125,000 0 4

125,001-200,000 1 2

200,001+ 1 20

Total 4 32

Source: USGBC 2009

2.1.2 Policy Impact and Evaluation

The adoption of the most recent model building codes would yield significant energy savings. In the 

residential sector, a recent McKinsey (2009) study estimates that the 2009 IECC code improves efficiency 

by 12%-16% relative to the 2006 IECC code. A projected 2012 code could save an additional 15% (Ibid.). 

Adopting both of these codes as they are made available would save an estimated 250 trillion end-use 

BTUs annually by 2020 (Ibid.). 

A similar potential for energy savings exists in the commercial sector. Adopting the latest building code, 

ASHRAE Standard 90.1-2007, followed by adoption of a code with an estimated 30% improved 

efficiency in 2012, would yield an estimated energy savings of 270 trillion end-use BTUs in 2020 (Ibid). 

This would represent 12% of potential commercial energy demand (Ibid). Yet today, only two states have 

adopted the most recent commercial building codes and 13 states have adopted either no code or codes 

 9 While LEED is not the only certification system available to localities, it is among the most common and provides 

insights into the overall market.
11

that are at least three generations behind (Ibid). Commissioner Arthur H. Rosenfeld of the California 

Energy Commission documented the effectiveness of building codes in California, as illustrated in Figure 

5. Building codes are responsible for reductions in peak demand of 5.75 GW (in 2003), in electricity 

consumption of 11 TWh per year, and a household annual savings of $2,000 (APS 2008). Each revision 

in California’s energy code (2002, 2005, and 2008) cut energy use by 10%-15% compared to the previous 

standard (Ibid.).

Figure 5: California's annual energy savings from efficiency programs and standards (Source: 

Rosenfeld 2008)

Although few states comprehensively track code enforcement due to limited resources, one recent survey 

indicates widespread lack of compliance with energy codes (BCAP 2008). Code officials cited barriers to 

enforcement, including limited manpower and training, and low prioritization of energy codes relative to 

safety-related codes (Ibid.). Another survey found that only four states have high compliance rates for 

current codes (Eldridge et al. 2008). A recent McKinsey study (2009) estimates full code compliance 

ranging from 40%-60%. There are rare examples of high levels of compliance, such as the state of 

Hawaii, which has an extensive training program for enforcement and an estimated 1999 compliance of 

80% (Eley 1999).

The McKinsey study suggests four ways of improving code compliance: 1) using third-party verifiers to 

spot-check buildings; 2) hiring more building officials; 3) increasing the pay and training of building 

officials; and 4) increasing the objectivity of performance-based code compliance. The estimated cost of 

improving compliance ranges from $210 million to $1 billion per year, but—if annually invested for ten 

years—would still yield $3.5 billion in net present savings at the higher cost estimate (Ibid.).

Annual Energy Savings from Efficiency Programs and Standards

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

19751976197719781979198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003

GWh/year

Appliance Standards

Building Standards

Utility Efficiency 

Programs at a cost of 

~1% of electric bill

~15% of Annual Electricity Use in California in 2003
12

2.2 Appliance Standards

Appliance standards mandate that new equipment must meet minimum energy efficiency standards. 

Industry-wide standards help reduce adoption costs and maintain a level playing field among 

manufacturers. Standards help reduce the cost of efficiency because manufacturers seek least-cost ways of 

reducing energy consumption in order to compete in the price-sensitive share of the market (Nadel et al. 

2005). Such standards, by increasing the overall efficiency of a product, also reduce the effects of many 

barriers to long-term energy savings, e.g., split incentives. Split incentives arise when those who 

purchase equipment do not have to pay for energy operating costs, such as home developers or landlords, 

who make decisions based only on initial capital costs.

2.2.1 Policy Evolution

The federal government has primary jurisdiction in setting standards. Sixteen states have also adopted 

standards for residential and commercial appliances not covered by federal legislation.

Federal Jurisdiction

Prominent federal policies in standard setting are outlined in Table 6. Since 1996, federal statutes have 

required the DOE to “set appliance efficiency standards at levels that achieve the maximum improvement 

in energy efficiency that is technologically feasible and economically justified” (EERE 2009a). 

Table 6: Legislation Relating to Federal Standard Setting for Energy Efficiency

Name of Legislation Year of 

Passage Description Legislative Reference*

Energy Policy and 

Conservation Act (EPCA) 1975

Calls for establishment of energy 

conservation program and efficiency 

targets

PL 94-163

National Energy 

Conservation and Policy 

Act (NEPCA)

1978

Authorizes DOE to set mandatory 

standards for thirteen household 

products

PL 100-12

National Appliance Energy 

Conservation Act (NAECA) 1988

Establishes national standards for 

home appliances, and schedules 

regular updates through 2012

PL 100-357

Energy Policy Act (I) 

(EPAct92) 1992 Expands standards to include additional commercial and residential appliances PL 102-486

Energy Policy Act (II) 

(EPAct05) 2005 Updates testing procedures for appliances PL 109-58

Energy Independence and 

Security Act (EISA 2007) 2007

Expands standards to include additional 

appliances and updates some existing

standards

PL 110-140

*All Appliance and Standards laws as well as DOE's authority in standard setting are found in 42 USC 77, Sub 3, 

Part A.

Note: A full listing of equipment in the standard setting process is available through the Appliance Standards 

Awareness Project (ASAP): http://www.standardsasap.org/federal.htm.

Sources: DSIRE 2009, LBL 2009, EERE 2009a, ASAP 2007

To develop a set of rules for setting appliance efficiency standards, DOE led a collaborative process in the 

mid-1990s that involved manufacturers and regulatory and consumer advocates. This collaborative 

process produced a protocol titled “Procedures for Consideration of New or Revised Energy Conservation 

Standards for Consumer Products,” published in 1996 (10 CFR Part 430). The Procedures stipulate that 

rule-makers must consider the economic impacts of proposed standards on manufacturers and consumers, 
13

as well as non-economic benefits associated with energy conservation, such as those related to carbon 

reduction and national security. The Procedures also stipulate the methodologies to calculate these costs 

and benefits. 

State Jurisdiction

Fifteen states10

2.2.2 Policy Impact and Evaluation

and Washington D.C. have adopted energy efficiency standards for residential and 

commercial appliances not covered by federal standards. California initiated many of these standards 

beginning in 1976, before the existence of federal legislation, providing a long-term demonstration of 

energy savings and reducing the implementation cost for other states to adopt California’s standards. In 

special circumstances, states may petition to have a stricter standard for an appliance than is covered by 

federal standards. This results in a patchwork of standards and may result in increased costs to 

manufacturers, relative to a single federal standard. 

To date, 17 residential, 13 lighting, and 17 commercial equipment federal standards have been 

promulgated by Congress or DOE (ASAP 2009). Extensive technological analyses have demonstrated the 

large energy savings that result from the standards, especially in later years as market penetration 

increases.11

An American Council for an Energy-Efficient Economy (ACEEE) study estimates similar savings. Over 

the 1990-2000 period, net present benefits exceed costs by an over three to one ratio. In 2010, existing 

standards will save 250 billion kWh (6.5% of projected electricity use) and reduce peak demand by 7.6% 

(ACEEE 2009). 

A 2003 study (Meyers et al.) suggests that standards taking effect from 1988-2003 will 

capture cumulative reductions in energy use from 1988-2050 of 8%-9% relative to a no-standards 

baseline. The corresponding cumulative costs of these standards have been estimated to be $200-$250 

million (2002 dollars), with a cumulative (through 2050) benefit/cost ratio of 2.75:1 (Meyers et al. 2003). 

A more recent study corroborates these findings, estimating 4% and 8% energy reductions resulting from 

standards in the commercial and residential sectors, respectively, for standards in place from 1987-2006 

(Meyers et al. 2008).

Figure 6 illustrates the impact of national and state standards on the energy efficiency of 

gas furnaces, central air-conditioning, and refrigerators. 

Figure 6: Impact of national and state appliance standards on energy 

efficiency (Source: S. Nadel (2003) cited in Rosenfeld 2008)

 

10 Arizona, California, Connecticut, Florida, Maine, Maryland, Massachusetts, Nevada, New Hampshire, New 

Jersey, New York, Oregon, Rhode Island, Vermont, and Washington 11 For an example of literature that analyzes the economic aspects of energy efficiency standards, please see 

Gillingham et al 2006.
14

2.3 Labeling and Education 

Labeling conveys information on energy operating costs to help consumers make purchasing decisions. In 

the United States labeling, from the federal level, comes in two forms:

• Comparative (“EnergyGuide”), which inform consumers about a products’ annual energy 

consumption relative to other products in the same class; and 

• Endorsements (“ENERGY STAR®”), which through a symbol placed on a product certify that the 

product is one of the most energy efficient in its class. 

2.3.1 Policy Evolution

Labeling programs take place only at the federal level. Mandatory comparative labeling was legislated in 

the Energy Policy and Conservation Act of 1975 and National Energy Conservation Policy Act of 1979, 

and was launched in 1980. The Federal Trade Commission prescribes the labeling requirements for 

residential appliances, and jointly with DOE, for commercial appliances.

Endorsement labels are used in the United States to identify very efficient products in a given class. 

Under the name ENERGY STAR (http://www.EnergyStar.gov), endorsement labeling is a voluntary 

program jointly implemented by the U.S. Environmental Protection Agency (EPA) and DOE. Initiated in 

1992, the program now covers 50 product categories and is a well recognized label. 

2.3.2 Policy Impact and Evaluation

The DOE estimates that the ENERGY STAR program is responsible for $16 billion in consumer savings 

in 2007 alone (Energy Star 2009b).12

One criticism of these types of labeling programs, both for the comparative information and ENERGY 

STAR endorsement, is their focus on efficiency rather than total consumption. Products are segregated by 

class, allowing large, upscale, energy-consuming products to be a separate category from similar products 

with much smaller energy footprints. This enables products, such as refrigerators, to grow much larger 

and offer more energy-consuming features without losing energy-efficiency endorsements. A smaller, less 

energy-consuming product can be labeled inefficient using the same energy consumption per cubic 

volume metric. Some evaluations of labeling programs have cited the need for a cap on total energy 

consumption of products labeled as energy efficient (Deumling 2008).

An independent 2002 study of the EnergyGuide label found that 

manufacturers and consumers widely recognize the label, but that the label’s contents should be revised to 

be more useful in terms of communicating information to consumers and thereby increase energy savings 

(Thorne and Egan 2002).

2.4 Financial Incentives

Energy efficient technologies, especially in early adoption, can have high up-front capital costs relative to 

inefficient alternatives. To help reduce this cost barrier and spur development, some policies offer 

financial incentives, such as grants, loans, rebates, subsidies, and tax incentives.

 12 To calculate energy savings, the DOE compared the efficiency of purchased ENERGY STAR appliances to the 

least efficient products in their class, an assumption which may not accurately reflect the value of the ENERGY 

STAR program. The DOE also incorporated harder to measure impacts, such as those related to the education 

campaign.
15

2.4.1 Policy Evolution

Federal Jurisdiction

Text Box2 presents a summary of historical and current energy efficiency policies that offer financial 

incentives to the buildings sector. Beyond the direct impact of lowering product capital and installation 

costs, these financial incentives have different goals depending on the sector. In the industrial and 

manufacturing sectors, the goal is to target efficiency improvements early in the commercialization 

process in order to reduce program implementation costs. In the commercial, residential, and end-user 

sectors, the goal is to use the financial incentives to educate the public on benefits of energy efficiency 

and increase market penetration of existing efficient technologies.

Relative to standards and labeling, federal financial incentives for efficiency are new. A set of tax 

incentives for energy efficiency were available from 1978-1985 (PL 95-618), but in recent years, the 

longest-available economic supports are the grants and loans offered to small agricultural residents and 

businesses through the U.S. Department of Agriculture’s Rural Energy for America Program (REAP), 

which began in 2002 (see Text Box ).13

 13 REAP is the new program name for the Renewable Energy Systems and Energy Efficiency Improvements 

Program established in the Farm Security and Rural Investment Act of 2002. 

Text Box 2 

Renewable Energy Assistance Project (REAP)

From 2002-2007, the United States Department of Agriculture (USDA) provided $23 million 

annually, in grants, loans, and loan guarantees, to small farmers to make energy efficient 

improvements and install renewable energy technologies. In the first year, the quality and 

number of applications were low, prompting the USDA and energy advocates, such as the 

Environmental Law and Policy Center, to offer technical assistance and better marketing in 

subsequent years. The program has since been oversubscribed. 

Energy efficiency projects represented 38% of total REAP awards between 2002-2005, and 

resulted in approximate energy savings of 75,000 Megawatt-hours (MWh). Additional program 

benefits include reductions in emissions resulting from energy not used, and energy cost 

savings for rural Americans (Walters et al. 2006). 

Based on program popularity and impact, as well as the increasing focus on energy and rural 

development issues more broadly in the United States, USDA announced that the program 

would expand to $220.9 million for 2008. Subsequently, the Food, Conservation and Energy 

Act of 2008 (HR 2419) allocated $60-$70 million annually from 2009-2012 for the program’s 

continuation.
16

Table 7: Non-R&D Financial Incentives for Energy Efficiency by Sector Type and Date of 

Availability

Target Subsector Type Incentive Name Available

Residential, Commercial, 

Agriculture Loan Guarantee USDA Rural Energy for America Program (REAP) 2002 -

Residential, Commercial, 

Agriculture Grant USDA Rural Energy for America Program (REAP) 2002 -

Residential Personal Tax 

Credit

Residential Energy Efficiency 

Tax Credit 2006 - 2009

Commercial Corporate 

Deduction

Commercial Buildings Tax 

Incentive 2006 - 2013

Industrial, Manufacturing Corporate Tax 

Credit

Energy Efficient Appliance Tax 

Credit for Manufacturers

Industrial, Construction Corporate Tax 

Credit

Energy Efficient New Homes Tax 

Credit for Home Builders 2006 - 2009

All Loan Energy Efficient Mortgages NA

Commercial Loan Guarantee DOE- Loan Guarantee Program 2006

Public Loan Qualified Energy Conservation 

Bonds 2008 - 2009

Residential Personal Tax 

Exemption

Residential Energy Conservation 

Subsidy Exclusion NA

Commercial, Industrial Corporate 

Exemption

Commercial/Industrial Energy 

Conservation Subsidy Exclusion NA

Note: This table does not include new legislation under ARRA.

The most recent federal efforts to establish financial tax incentives target upstream efforts for the 

purposes of optimizing intervention costs (i.e., approaching a small number of appliance manufacturers 

instead of a large number of consumers). There is, however, one end-user investment tax credit for 

primary residences and high-efficiency home equipment.14

State Jurisdiction

These two tax incentives are too early in 

implementation to evaluate their effectiveness. 

Many states also provide financial incentives to support energy efficiency. For example, Oregon has 

offered a Business Energy Tax Credit (BETC) since 1979, which includes a tax credit of 35% towards the 

purchase of conservation technologies, and includes a Pass-through Option, which allows entities that do 

not pay a sufficient amount in taxes to receive a lump-sum payment (Oregon Department of Energy 

2009). Rather than being based on costs, as is typical of tax credits, this financial incentive is based on 

performance as measured by square footage and level of achieved sustainability, which includes, at a 

minimum, reductions in energy use of 10% for building retrofits or new home construction, and 25% 

 14 Home equipment includes windows, doors, insulation, heat pumps and heat pump water heaters, central air 

conditioners, natural gas, propane, or oil water heaters and furnaces, whole house fans, and biomass stoves (Energy 

Star 2009a).
17

reductions for lighting upgrades. A tax credit is also available to developers of sustainable buildings with 

LEED-certifications of at least Silver.15

The Database of State Incentives for Renewable Energy and Energy Efficiency (DSIRE, 

www.dsireusa.org) details many of these state- and utility-based financial incentives for the building 

sector. Other examples include the California Energy Commission, which offers loans at a fixed rate of 

3% to schools, hospitals, and local governments for energy audits and the implementation of efficiency 

measures. Missouri offers an occasional sales tax holiday on the purchase of ENERGY STAR appliances. 

New York offers financial incentives and technical assistance to owners of multifamily buildings to 

improve building energy performance. Utilities across most states offer rebates toward the purchase of 

energy-efficient appliances (DSIRE 2009). 

Because of the typically higher initial costs and distributed benefits of energy efficiency, one challenge to 

policy implementation is funding. Some states have elected to fund energy efficiency programs, including 

financial incentives, by adding a utility charge to each customer bill, called a systems benefit charge 

(SBC). The designs of SBCs vary widely, but they are generally collected as a $/kWh charge on 

consumer utility bills and used to fund incentives, education programs, and demonstration projects. 

Because these funds are derived from utility bills rather than the general state budget, the funds have 

remained stable despite severe cuts in public spending across most states in 2009.

Table 8 provides a list of states with system benefit charges, including an estimate of the annual value of 

the funding provided. 

Table 8: State Public Benefit Funds with Effective Dates and Estimated Funding

State Effective Date Annual Funding ($ Millions)

California 1996 $228

Connecticut 2000 $60-$70

Delaware 1999 $3.2

District of Columbia 2008 $7.5-$20 (2009-2012)

Illinois 1999 $3

Maine 1999 $7

Massachusetts 1998 $237

Michigan 2000 $83.8

Montana 1999 $10

New Hampshire 1996 $19

New Jersey 2001 $176

New York 1996 $156

Ohio 1999 $10

Oregon 1999 $52

Pennsylvania 1996 $4*

Rhode Island 1997 $17*

Vermont 2000 (Efficiency Vermont) $30

2005 (Clean Energy fund) $6-$7

Wisconsin 1999, restructured 2007 $90

*Estimates from Eldridge et al 2008, for year 2006 includes efficiency spending only) 

Source: DSIRE 2009

 15 For more information on LEED ratings, see www.usgbc.org/displaypage.aspx?CMsPageID=222
18

Local Jurisdiction

Local governments offer both financial and non-financial incentives. One new policy trend is to finance 

residential energy efficiency improvements through municipal bonds that are repaid through property 

taxes. The financing is provided in exchange for a lien on the property. 

This type of project alleviates two barriers that would otherwise restrict energy-efficiency financing—

credit and collateral (Johnson 2009). Residents do not need good credit to get a loan, because the loan is 

secured against their property. That the property serves as collateral is also essential to eliminating the 

lender’s risk, because, unlike solar panels, energy efficiency retrofits cannot be removed in the event of 

non-payment.

Another benefit of this program is that homeowners do not have to recoup their investment through home 

sale price if home ownership changes hands. The loan resides with the property owner rather than the 

purchaser. This is especially valuable because energy efficiency upgrades, such as insulation, are often 

invisible to prospective home buyers.

A second type of locally-implemented financing is through the Weatherization Assistance Program 

(WAP), which recently benefited from a surge in funding by the federal American Recovery and 

Reinvestment Act of 2009. Rather than subsidizing the monthly utility bills of low-income residents, the 

goal of WAP is to permanently reduce their bills by helping pay for one-time energy efficiency upgrades 

to their residences. A secondary goal is to increase the number of “green jobs” by expanding the market 

for energy audits and efficiency retrofits. WAP-funded programs have weatherized more than 6.2 million 

homes over a 32-year period, reducing heating and cooling bills by an average of 32% (McKinsey 2009). 

The ARRA increases the projected pace of weatherization from 100,000 homes annually to 1 million for 

each of the next three years (Ibid.).

Local governments can also influence building efficiency through non-financial incentives. In states with 

building codes that do not allow local alterations, localities can affect energy efficiency in the private 

sector by offering incentives to developers. This includes financial outlays, such as New York’s incentive 

for green building,16 but, more commonly, includes zero-cost incentives, such as expedited permitting. 

For example, one locality, Arlington, VA, grants density and/or height bonuses to buildings that achieve 

LEED-certification. The effectiveness of this small group of geographically dispersed incentives has not 

been evaluated in the aggregate.

2.4.2 Policy Impact and Evaluation

Evidence from the evaluation of historical tax credits for energy efficiency offers lessons learned and 

insight into the potential impact of tax incentives offered at the federal level. The Energy Act of 1978 (PL 

95-618) established a 15% tax credit—capped at $300 and available from 1978-1987—for homeowners 

to make efficiency upgrades. Before the program was ended in a suite of policy reforms in 1985, 30 

million claims were filed, resulting in a $5 billion (nominal dollars) reduction in tax revenues. 

There is evidence from program evaluation surveys that participants perceived that the effort exerted to 

get the incentive outweighed the value of the tax credit (an average of $166 per applicant). Moreover, the 

survey suggested that a high percentage (94%) of those filing for the incentive would have invested in the 

technology without the incentive (“free riders”) (Gillingham et al 2006).

These challenges, low incentive value and high free-ridership, are common to financial incentive policies. 

Determining the appropriate level of incentive is difficult because it depends on investor discount rates, 

technology costs and other factors. Today’s tax credits allow for larger incentives for higher efficiency 

 16 For details, see: http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=NY05F&re=1&ee=1.
19

equipment, potentially increasing the impact of the program and reducing free riders. The actual outcome 

remains to be seen pending experience with the program.

2.5 Research and Development

Although this report focuses primarily on policies that promote market transformation and deployment 

strategies for energy efficiency technologies, the DOE sponsors a number of research and development 

programs across all sectors (buildings, transportation, industry, and power) through the Energy Policy Act 

of 2005, the Energy Independence and Security Act of 2007, and ARRA 2009. A full analysis of 

efficiency-related research and development, including at the state level, is beyond the scope of this 

report, but a summary of DOE-sponsored R&D is provided for each sector in the relevant section of this 

report. 

For buildings, current programs totaling $140 million (FY09, not including ARRA funding) focus on 

energy efficiency gains in:

• Building envelope, including the goal of market-viable windows with R5 insulation by 2010; net-zero 

energy systems by 2025; and reductions in average thermal load of existing and new residential 

buildings of 30% and 66%, respectively;

• Building equipment, including advanced refrigerants, smart sensors, and heat recovery;

• Analysis and design tools, such as performance simulation software; and

• Solid state lighting, with a goal of 50% load reductions in 2025 compared with 2005 

(http://www.ssl.energy.gov/) (DOE 2009).
20

3 Transportation Sector

The transportation sector consumes 28 quadrillion BTUs annually, and represents 28% of U.S. primary 

energy consumption (EIA 2008). Fuel consumption in the transportation sector spans many end-uses in 

the movement of both people and goods. Improving transportation efficiencies could address, for 

example:

• Movement of people: e.g., reducing the fuel needed to drive each mile and the total vehicle miles 

driven, including through the use of alternative modes of transit beyond single-occupant vehicles

• Movement of goods: e.g., increasing intermodal transportation by combining the use of barges and 

trains with tractor-trailers.

Energy efficiency policies in this sector therefore focus on developing and deploying new technologies 

that increase fuel efficiency and creating incentives to alter transportation patterns. Transportation 

policies can be categorized as:17

1. Standards, which establish minimum fuel efficiency

2. Labeling, which provides consumers comparative information on fuel efficiency

3. Incentives, both financial and non-financial, which target manufacturers and consumers to 

encourage market front-runners to develop and purchase more efficient vehicles

4. Technical assistance, which assists the public and private sectors in adopting fuel-efficient 

technologies and implementing policies to reduce fuel consumption

5. Urban planning and behavior change, including zoning, traffic design, and idle reduction rules to 

reduce fuel consumption

6. Research and development, e.g., on battery technology.

The federal government has taken the lead on most of these policies, with the exception of urban 

planning, which resides primarily in local and regional jurisdictions. The federal government establishes 

mandatory manufacturing standards and voluntary programs that provide education, incentives, and 

assistance for increasing fuel efficiency. 

States, until this year, have not been allowed to preempt federal fuel efficiency standards. In July, 

California received permission from the federal government to allow stricter state-level fuel efficiency 

standards, which up to thirteen other states and Washington, D.C. have agreed to adopt (EPA 2009). 

Also, half of all states offer incentives that encourage the use of fuel-efficient technologies, regulations 

that govern engine idling, and technical assistance to municipalities and businesses to implement energysaving programs (see Appendix B). 

Local governments tend to focus on policies that alter driving patterns as part of broader efforts to reduce 

pollution and traffic. Such policies include land use planning (often part of a regional collaboration), 

public transportation programs, and regulations that restrict engine idling. A limited number of local 

governments offer consumer incentives to adopt fuel-efficient vehicles. 

Governments across all jurisdictions lead by example, supporting efficient technologies in publiclyowned fleets.

 17 This report primarily focuses policies that address personal vehicles, but similar policies can be developed for 

other modes of transportation.
21

Table 9 summarizes the mapping of policies to jurisdiction.

Table 9: Map of Transportation Policies to Jurisdiction

Federal State Local

Fuel efficiency standards18 Yes Some None

Labeling Yes None None

Incentives Yes Half Some

Technical assistance Yes Half None

Urban planning and behavior change No Some Some

Research and development Yes Some None

The remainder of this section provides brief narrative descriptions of current status,19

3.1 Fuel Efficiency Standards

and, where 

available, illustrative examples of successes and summaries of published policy evaluations. 

Fuel efficiency standards promote technological innovation and adoption across the nation’s vehicle fleet. 

Because cars remain in service for an average of nine years (Federal Highway Administration 2009), fuel 

efficiency standards are an important tool in curtailing long-term fuel demand.

3.1.1 Policy Evolution

Federal Jurisdiction

The Corporate Average Fuel Economy (CAFE) has been the primary federal legislation to control fuel 

efficiency in U.S. vehicles. CAFE requires that the average fuel economy, expressed in miles per gallon 

(mpg), of all vehicles20

Legislated by Congress in 1975 in response to the Arab-oil embargo, the original goal was to double 

average fuel efficiency to 27.5 mpg by 1985. Instead, due to increases in vehicle weight and performance, 

the average peaked at 22.0

sold by each manufacturer in a given model year meet or exceed minimum fuelefficiency standards. CAFE standards are codified in 49 CFR 6 and implemented jointly by the National 

Highway Traffic Safety Administration (NHTSA), who set the standards, and the EPA, which tests 

vehicle efficiency and runs the labeling program. 

21

Although the federal government has only recently increased fuel-efficiency standards for the private 

sector, the government has established relatively strict fuel efficiency for all federal vehicles. Executive 

Order 13149: The Greening of Government (EO13149 2000) states, “Each agency operating 20 or more 

motor vehicles within the United States shall reduce its entire vehicle fleet’s annual petroleum 

consumption by at least 20 percent by the end of FY 2005, compared with FY 1999 petroleum 

mpg in 1987 and gradually declined to 19.3 mpg in 2004, before rising again 

to 20.6 in 2007 (EPA 2008). Revisions to the standard, passed in 2007 for the first time since 1975, 

mandate a 35 mpg average by 2020.

 18 Not including policies that require governments to lead by example. 19 Note that ARRA related funds are not explicitly covered here, as a result of early stage of implementation of the 

programs.

20 The legislation applies to cars and light trucks with a gross vehicle weight rating of less than 8500 pounds, but 

will include vehicles up to 10,000 lbs after model year 2010.

21 EPA and NHTSA use different calculations for fuel efficiency. CAFE standards, set by NHTSA, represent

estimates that are 25% higher than the corresponding EPA “real-world” adjusted estimates (EPA 2008).
22

consumption levels.” The DOE guidance stated that increasing vehicle fleet efficiency by 3 mpg could 

decrease petroleum use by 10-13% (EO13149 2000). 

Table 10 describes the history of federal efficiency regulations, including legislation that requires 

federally-owned vehicles to consume fewer fossil-fuels through the use of alternative-fuel vehicles.

Table 10: Federal Efficiency Standards, Including Lead by Example Fleet Purchasing 

Requirements

Program Description Citation

Clean Air Act Amendments of 

1990

Created initiatives to reduce mobile 

source pollutants 42 USC 7401-7671

Corporate Average Fuel Economy 

(CAFE) (1975)

CAFE is the sales-weighted average fuel 

economy, expressed in miles per gallon, 

of a manufacturer's fleet of passenger 

cars or light trucks with a gross vehicle 

weight rating of up to 8,500 pounds 

manufactured for sale in the U.S. for any 

given model year.

49 USC 329

Idle Reduction Facilities 

Regulation

This legislation permits states to provide 

facilities in interstate system rights-of-way 

that allow operators of commercial 

vehicles to reduce truck idling or use 

alternate power sources.

23 USC 111

Updated Fuel Economy Test 

Procedures and Labeling (1975)

The EPA is responsible for oversight of 

motor vehicle fuel economy testing. 

Manufacturers test their own vehicles and 

report the results to the EPA.

40 CFR 600

Requirement for Federal Fleets 

(1992)

Seventy-five percent of new light-duty 

vehicles acquired by certain federal fleets 

must be AFVs (alternative fuel vehicles), 

including ethanol flex fuel, hybrid electric 

vehicles, fuel cell vehicles, and advanced 

lean burn vehicles.

Energy Policy Act 

of 1992 (EPAct)

Vehicle Acquisition and Fuel Use 

Requirements for Private and 

Local Government Fleets

DOE extends to 2030 the goal of EPAct 

1992 to achieve production capacity of 

alternative fuels equivalent to 30% of U.S. 

motor fuel consumption.

42 USC 13257

Source: AFDC 2009

State Jurisdiction

The federal government has jurisdiction over setting manufacturer standards, but on June 30, 2009, 

granted California a waiver to allow the state to establish a separate, higher fuel efficiency standard.

Thirteen states and Washington, D.C. have adopted California’s proposed standard, but with the revised 

federal emission standards passed in May 2009, the California and federal standards are already in

alignment. 

Because this waiver was granted this year, state policies to date have largely emphasized public 

leadership in transportation efficiency through fleet procurement policies (in 25 states). Bulk purchasing 

enables states to expand the market for high-efficiency vehicles. Most of these programs result from 

executive or administrative orders and the stringency and impact vary widely, depending on program 

design and level of advocacy. Most programs have a clause allowing state agencies with reasonable cause 
23

to be released from the program, and without careful implementation, the percentage of released agencies 

can be large. However, when appropriately implemented (e.g., in California) these programs may increase 

state fleet efficiency and, through lower costs resulting from the expanded market, expand the private 

market for transportation efficiency gains. 

Some states, such as California, have increased statewide average fuel efficiency, despite historical 

federal jurisdiction over standards, by requiring a minimum percentage of vehicles sold to be zero- or 

low-emission vehicles. This type of emissions policy directly influences average fuel efficiency by 

encouraging the sales of alternative-fuel vehicles. California has also established efficiency standards for 

areas not governed under federal jurisdiction, such as for tires.

Reducing engine idling, which reduces fuel burned during non-travel time, is another way to increase 

vehicles’ effective mpg. The trucking industry estimates that trucks consume one gallon per hour during 

idling. About half of all states have passed legislation related to engine idling; e.g., directly limiting the 

amount of time trucks may remain idle. State programs to reduce idling often stem from efforts to reduce 

local emissions and consumer costs, but are also an effective tool to reduce fuel consumption.

Increasingly, states are forming regional collaboratives to address climate change challenges. While most 

of these efforts focus on electricity generation, the Western Climate Initiative (comprising seven western 

states and four Canadian provinces) includes transportation fuels in its cap-and-trade program (WCI 

2009). 

Local Jurisdiction

To reduce local air pollution and public expenditures on fuel, several localities are instituting stringent 

fuel-efficiency policies for municipal fleets. For example the city of Denver leads by example through its 

long-standing emissions reduction program. The goal of the program in 1993 was a 1% reduction of 

greenhouse emissions from the Denver municipal fleet every year for 10 years. After accomplishing this 

goal ahead of schedule, in 2000 the city revised its goal to further increase fleet efficiency, minimize 

vehicle miles traveled, and increase the use of alternative fuels (Linstroth and Bell 2007). 

Local governments have also been active in developing idle reduction policies to promote local air 

quality. For example in Minneapolis, in order to reduce local air pollution, a 2008 city ordinance restricts 

engine idling to three minutes for most private and public vehicles (MN AQ 2008). 

Other examples of local action include Seattle’s Fleet Action Plan, which requires increased fuel 

efficiency and the use of certain alternative fuels, and Minneapolis’s procurement policy that has resulted 

in 18 additional hybrid-electric vehicles to the municipal fleet in 2007, for a total of 25 (MN 2008). 

3.1.2 Policy Impact and Evaluation

A National Research Council Committee reviewed the impact of minimum fuel efficiency standards 

between 1975 and 2002, and concluded that due to a variety of factors (e.g., fuel price fluctuations, 

changes in consumer behavior, and general vehicle technology improvement), isolating the impact of the 

standards was impossible (NAS 2002). Nevertheless, the standards resulted in maintaining a minimum 

fuel economy when fuel prices were very low. 

The standards have a secondary effect of reducing vehicle-related air pollution. The Clean Air Act of 

1970 and associated amendments in 1990 require reductions in vehicle-related emissions. Because 

reducing the amount of fuel burned reduces air pollution, the federal fuel-efficiency standard is one of the 

policies used to fulfill the Clean Air Act.
24

3.2 Labeling and Consumer Education

Fuel-consumption labels help inform consumers about the fuel efficiency and potential operating costs of 

a vehicle. The EPA provides fuel efficiency estimates for both city and highway driving, and this 

information is provided in an easy-to-read sticker placed prominently on new vehicles for sale.

3.2.1 Policy Status

Fuel-efficiency labeling is offered exclusively by the federal government. The federal government 

requires that all new cars contain a fuel efficiency label that provides EPA estimates for fuel consumption 

and how the vehicle’s fuel efficiency compares to other vehicles in its class. This label provides similar 

information to the EnergyGuide label for appliances. In addition to this vehicle sticker, DOE’s Office of 

Energy Efficiency and Renewable Energy and the EPA jointly provide comparative fuel efficiency and 

information on how to reduce fuel consumption on the web site www.fueleconomy.gov.

3.2.2 Policy Impact and Evaluation

To date, no analysis has been done on the energy savings impacts of the vehicle labels. Currently, the 

label is comparative, and does not provide an endorsement (like the ENERGY STAR label for highefficiency appliances). An endorsement label is provided through the federal SmartWay program (see 

AFDC 2009 for description), but an evaluation of that program is not currently available. Sociology 

literature generally supports the effectiveness of well-designed comparative labels in expanding the 

market for energy efficiency (Thorne and Egan 2002). 

3.3 Incentives

Incentives, both financial and non-financial, encourage manufactures to develop fuel-efficient 

technologies and consumers to purchase such technologies. Financial incentives include low-interest 

loans for manufactures to upgrade their manufacturing process or produce fuel-efficient equipment. 

Consumer-oriented financial incentives focus on lowering the upfront cost of fuel-efficient technologies. 

Non-financial incentives are particularly popular at the state and local levels because they do not incur a 

cost to government. Such incentives include access to traffic-restricted roads and parking.

3.3.1 Policy Evolution

Federal Jurisdiction

The federal government provides a number of financial incentives for high efficiency vehicles (Table 11). 

On the manufacturing side, for example, the federal government offers low-interest loans to help car 

manufactures upgrade their plants to improve their ability to manufacture highly efficient vehicles. The 

federal government also applies a “gas guzzler” tax, normally collected from manufacturers or importers, 

on passenger cars that fail to meet a fuel economy of 22.5 mpg. 

For consumers, the federal government offers tax credits for the purchase of a select number of hybrid, 

diesel, alternative fuel, and electric vehicles through at least 2010. In June 2009, the federal government 

instituted the Car Allowance Rebate System, also known as Cash-for-Clunkers. The program provided 

consumers a credit for inefficient vehicles that they trade in towards the purchase of a more efficient new 

vehicle. 

State Jurisdiction

Incentives at the state-level include financial incentives for manufacturers, as well as financial and nonfinancial incentives for consumers. Some states offer R&D manufacturing incentives, often with the 

concurrent goal of developing the state’s workforce and attracting manufacturers of advanced vehicle 
25

technologies. Wisconsin, for example, offers tax credits of 10% of the corporation’s research expenses on 

batteries and engines that reduce fuel use (AFDC 2009). Other states offer grants toward the 

establishment of alternative fuel production. State governments also make low-interest loans and grants to 

businesses for purchasing technologies that reduce fuel consumption, such as loans for idle-reduction 

technologies.

Table 11: Federal Tax Incentives Related to Energy in the Transportation Sector

Policy Description Citation

Advanced Technology 

Vehicle (ATV) 

Manufacturing 

Incentives (2007)

Direct loans for up to 30% of the cost of re-equipping, 

expanding, or establishing manufacturing facilities in the 

U.S. used to produce qualified ATVs or ATV 

components.

PL 110-140, 

Section 136

Idle Reduction 

Equipment Excise Tax 

Exemption (2008)

Qualified on-board idle reduction devices and systems 

are exempt from the 12% retail excise tax imposed on 

heavy-duty trucks and trailers.

PL 110-343, 

Section 206, 25 

USC 4053

Heavy-Duty Hybrid 

Electric Vehicle (HEV) 

Tax Credit (2007)

A tax credit of up to $18,000 is available for the purchase 

of qualified heavy-duty HEVs with a gross vehicle weight 

rating of more than 8,500 pounds.

26 USC30B

Light-Duty HEV and 

Advanced Lean Burn 

Vehicle Tax Credit 

(2007)

A tax credit for qualified light-duty HEVs and advanced 

lean burn technology vehicles placed in service after 

December 31, 2005. The credit begins to phase out in 

the second quarter following the calendar quarter in 

which at least 60,000 of a manufacturer's qualifying 

HEVs and/or lean burn passenger automobiles and light 

trucks have been sold.

26 USC30B

High Occupancy 

Vehicle (HOV) Lane 

Exemption (2007)

Allows states to exempt certified low emission and 

energy-efficient vehicles from HOV lane requirements. 23 USC 166

Qualified Plug-In 

Electric Drive Motor 

Vehicle Tax Credit

A tax credit for the purchase of a new qualified plug-in 

electric drive motor vehicle that draws propulsion using a 

traction battery that has at least four kilowatt hours of 

capacity, uses an off-board source of energy to recharge 

the battery, and meets specified emission standards. The 

credit will begin to be phased out in the second quarter 

following the calendar quarter in which a minimum of 

250,000 qualified plug-in electric drive vehicles have 

been sold for use in the U.S. This tax credit expires 

December 31, 2014.

26 USC 30D

Pollution Prevention 

Grants Program (2007)

Supports state and tribal technical assistance, education, 

and research programs that help businesses and 

industries identify better environmental strategies and 

solutions for complying with federal and state

environmental regulations.

42 USC 13104

Source: AFDC 2009

Examples of consumer financial incentives include reductions in state taxes on the sale of alternative fuels 

and tax credits toward the purchase of infrastructure needed for electric cars. Non-financial incentives at 

the state level include exemption from high-occupancy vehicle (HOV) rules, which restrict the number of 

cars allowed in select highway lanes. Such policies use the incentive of time savings rather than fuel 

savings to attract the purchase of fuel-efficient vehicles.
26

Appendix B summarizes state incentives and regulations that encourage or mandate steps to increase 

energy efficiency in transportation systems and operational behavior (AFDC 2009). 

Local Jurisdiction

Some local governments offer incentives to the private sector for increased vehicle efficiency. Salt Lake 

City, for example, issues preferred “green” parking permits for high efficiency (i.e., greater than 41 mpg) 

vehicles (SLC 2009). The city of Flagstaff, Arizona offers a rebate on the 1% vehicle sales tax (up to 

$300) to consumers who purchase vehicles with a highway fuel economy over 27 miles per gallon 

(Flagstaff 2009). The program began in 2009 and no evaluation has been carried out. 

3.3.2 Policy Impact and Evaluation

Because the IRS tax credit programs are in progress, there has been very little evaluation of the programs’ 

effectiveness. An initial study provides evidence that consumers have altered their behavior in 

anticipation of the credit (Sallee DRAFT 2007).

One criticism of tax credit programs as a tool for fuel efficiency is that hybrid vehicles can qualify for tax 

credits even if they have relatively low fuel efficiency, such as vehicles where the hybrid system is used 

to increase acceleration rather than decrease engine size. Conversely, some highly efficient hybrid 

vehicles do not qualify because the manufacturer has already sold over 60,000 hybrid vehicles. This 

qualification was designed to support domestic car manufacturers, which were late adopters of hybrid 

technology.

3.4 Technical Assistance

Technical assistance programs draw on the expertise of government agencies to assist states, 

municipalities, and businesses in improving energy efficiency.

3.4.1 Policy Evolution

Federal Jurisdiction

The federal government funds multiple programs that assist state and local governments and the private 

sector to increase the use of high efficiency and alternative-fuel vehicles. For example, through the Clean 

School Bus program, the federal government works with municipalities to minimize children’s exposure 

to diesel bus exhaust through changes in route and idling procedures. Table 12 summarizes efficiencyrelated technical assistance programs in the transportation sector.

State Jurisdiction

Twenty-six states plus Washington, D.C. offer technical assistance programs to help fleet managers 

evaluate the feasibility of incorporating or converting to alternative-fuel vehicles (AFV) (AFDC 2009). 

For example, Texas offers technical training for mechanics on AFVs and feasibility studies for 

compressed natural gas fueling stations. California offers technical assistance on electric vehicle 

infrastructure.
27

Table 12: Federal Technical Assistance Programs in the Transportation Sector

Program Description Citation

Air Pollution Control Program 

(2007)

Assists state, local, and tribal agencies in planning, 

developing, establishing, improving, and 

maintaining adequate programs to prevent and 

control air pollution and implement national air 

quality standards. Air quality affects energy 

efficiency because reduced energy use reduces 

electricity production, a source of air pollution.

42 USC 7405

Alternative Transportation in 

Parks and Public Lands 

Program (2005)

Provides funds to support planning and capital 

expenses for alternative transportation systems in 

parks.

49 USC 5320

Congestion Mitigation and Air 

Quality (CMAQ) Improvement 

Program (2007)

Provides funding to states’ departments of 

transportation, municipal planning organizations, 

and transit agencies for projects and programs that 

reduce transportation-related emissions in air quality 

nonattainment and maintenance areas.

23 USC 149

Clean Cities

Promotes the energy, economic, and environmental 

security of the United States by supporting local 

initiatives to adopt practices that reduce the use of 

petroleum in the transportation sector.

Clean School Bus USA

Reduces children’s exposure to harmful diesel 

exhaust through a public-private partnership that 

limits school bus idling, implements pollution 

reduction technologies, improves route logistics, 

and switches to clean fuels.

SmartWay Transport 

Partnership

Assists the ground freight industry in quantifying 

emissions and creating a plan to reduce fuel 

consumption. 

State Energy Program (SEP) 

Funding

Provides grants to states to assist in designing, 

developing, and implementing renewable energy 

and energy efficiency programs.

Voluntary Airport Low Emission 

(VALE) Program (2007)

Reduces ground level emissions at commercial 

service airports located in designated ozone and 

carbon monoxide air quality nonattainment and 

maintenance areas

49 USC 40101

Source: AFDC 2009

3.4.2 Policy Impact and Evaluation

Technical assistance programs have benefits beyond fuel savings, including community building and 

information dissemination. For example, DOE’s Clean Cities program has resulted in an estimated fuel 

savings of 360 million gallons of gasoline equivalents (GGE) in 2006 (exceeding program goals by over 

50 GGE). In addition, this program helped establish over 90 community-based clean-cities coalitions that 

create networks, effectively disseminate information, and leverage federal program dollars through 

public-private partnerships (Smith 2007).
28

3.5 Urban Planning and Behavior Change

One of the most effective long-term and low-cost measures to reduce fuel consumption is to develop 

zoning and transportation plans that prioritize walking and public transportation and minimize driving. 

State and local governments have also used regulations to alter driver behavior, such as idle reduction 

policies that exist in 26 states. The federal government has offered policies that encourage behavioral 

change, such as federally-mandated speed limits (1974-1995) to improve fuel efficiency, but 

transportation and land-use planning falls primarily within state and local jurisdictions.

3.5.1 Policy Evolution

State Jurisdiction

Some states have innovative state petroleum- and/or emissions-reduction plans, which offer multiple 

benefits including reduced petroleum use, congestion, and parking shortages. For example, Vermont’s 

Greenhouse Emissions Study includes transportation-related energy efficiency recommendations, 

including the increased use of alternative modes of transportation and public education about efficient 

transport options. These state plans vary, because they develop from stakeholder-driven processes, but the 

tailored programs allow for flexible solutions to petroleum dependency. 

Local Jurisdiction

Urban planning is a multi-faceted effort that is carried out in a variety of ways in different localities. 

Some communities integrate climate change or sustainability programs into their larger master planning 

processes, while others separate out the sustainability planning process in order to make it more flexible 

to changing needs. 

The transportation pieces of urban planning include transportation infrastructure, public transportation, 

population density goals, land use planning, and vehicle miles traveled targets. In 2006, the city of 

Berkeley, California integrated transportation efficiency into the community climate change action plan 

with a goal of creating a community where public transport and walking are the primary modes of 

transportation (Berkeley 2008). This plan was based on a voter-passed measure to reduce greenhouse 

gases by 80% and outlines the goals, strategies (including funding), and evaluation methods, and assigns 

city offices to each of the tasks. 

3.5.2 Policy Impact and Evaluation

No evaluation has been completed for these programs.
29

3.6 Research and Development

Although this report focuses primarily on policies that promote market transformation and deployment 

strategies for energy efficiency technologies, the DOE sponsors a number of research and development 

programs across all sectors (buildings, transportation, industry, and power) through the Energy Policy Act 

of 2005, the Energy Independence and Security Act of 2007, and ARRA 2009. These are somewhat 

outside the scope of this report, but represent an important role for government and so are summarized for 

each sector. To support improved efficiencies in the transportation sector, DOE currently sponsors 

research and development programs totaling $273 million (FY09, not including ARRA funding), with a 

focus on:

• Light vehicles, through FreedomCAR and the Fuel Partnership, which have specific performance 

goals for AFVs, alternative fuels, and lightweight materials;

• Heavy vehicles, primarily through the 21st Century Truck Partnership,22

• Aviation, with a focus on reducing carbon dioxide emissions of 25% compared to business-as-usual 

within 10 years and 50% within 25 years (DOE 2009).

which focuses on long-haul 

performance, stop-and-go operations, and stationary power needs. Specific goals include decreasing 

aerodynamic drag and tire-rolling resistance, and electrifying ancillary equipment; and

 22 This program is a partnership among DOE, EPA, and the US Department of Transportation.
30

4 Industrial Sector

The industrial sector, which accounts for 31% of U.S. primary energy consumption (EIA 2008), spans a 

wide variety of subsectors, all of which have different energy needs. Thus policies to improve energy 

efficiency in this sector are designed to allow flexibility across a number of differing industry needs, 

including:

1. Incentives, both financial (e.g., loans and grants for industries to upgrade equipment) and nonfinancial (e.g., expedited permitting)

2. Technical assistance, including programs, such as energy audits, that help industries identify and 

implement energy-efficiency programs

3. Research and development.

The federal government offers all three policy types. It offers tax incentives for the manufacturing and 

home building subsectors, and loans that require energy savings and emission reductions from 

participating companies. These incentives are flexible enough to apply to a broad array of industry 

subsectors. In addition, the federal government offers several general industry programs that provide 

plant-specific technical assistance to highly energy-intensive industries. 

State government programs focus on financial incentives, including tax credits, loans, and grants, to offset 

costs to industries for adopting efficient technologies. Many states also offer programs that can provide 

customized support to individual industries as part of broader energy efficiency programs. These 

programs allow funds to be spent on both incentives and technical assistance. 

Local government programs related to energy efficiency are often designed with the goal of attracting 

industries, and thus jobs, to the locality. These programs primarily rely on non-financial incentives, such 

as expedited permitting for “green” industries.

Table 13 summarizes the mapping of policies to jurisdiction.

Table 13: Map of Industrial Energy Efficiency Policies to Jurisdiction

Federal State Local

Incentives Yes Some Some

Technical Assistance Yes Some None

Research and development Yes Some None

The following sections expand on some of these key industrial programs. 

4.1 Incentives

Incentives in the industrial sector often involve one of two goals related to energy efficiency. First, 

financial incentives can help industries defray the upfront costs of adopting energy-efficient technologies. 

Second, financial and non-financial incentives that reward energy efficiency are used to attract green 

industries to a state or locality, with the end goal not of energy savings, but of job creation in an emerging 

market. 
31

The federal government has established incentives that specifically address the industrial sector.

Federal Jurisdiction

23

• Appliance Tax Credit for Manufacturers. The federal government offers a tax credit to 

manufacturers of energy-efficient home appliances (clothes washers, refrigerators, and dishwashers). 

The credit ranges from $45-$200 for every additional appliance produced above a rolling two-year 

baseline (DSIRE 2009). EPAct2005 provided incentives through 2007, which were extended until 

2010 through the Energy Improvement and Extension Act of 2008 (H.R. 1424, Division B).

These 

include two forms of tax credits and a loan guarantee program:

• Energy Efficient New Homes Tax Credit for Home Builders. These $2,000 tax credits are for 

builders of energy-efficient new homes, e.g., site-built homes must consume 50% less heating and 

cooling energy compared with IECC standards. Initially scheduled to expire at the end of 2007 by 

EPAct2005, the tax credit was extended through 2008 by Section 205 of the Tax Relief and Health 

Care Act of 2006 (H.R. 6111), and then extended again through 2009 by Section 304 of The Energy 

Improvement and Extension Act of 2008 (H.R. 1424) (DSIRE 2009).

• DOE Loan Guarantee Program. The DOE under EPAct2005, issues loan guarantees for 

commercial projects that adopt new energy-efficient technologies, e.g., for lighting, windows, and 

roofs. The loans for energy efficiency are part of a larger program that includes renewable energy 

technologies (EPAct 2005 and DSIRE 2009).

State Jurisdiction

State policies that focus on the industrial sector primarily offer incentives to encourage industries to adopt 

energy-efficient technologies (Table 14). The financial mechanisms employed vary based on the end-user, 

and include loans at reduced interest rates to defray initial capital costs; tax credits that appeal to 

companies with large tax appetites; and grants that promote research and development within the state. 

Table 14: States with Industrial Sector Incentives

State Incentive Name

CA Agriculture and Food Processing Energy Loans

CO Clean Energy Fund: New Energy Economic Development

DE Green Energy Fund R&D Program

GA Clean Energy Tax Credit

IA Grants for Energy Efficiency and Renewable Energy Research

KY Sales Tax Exemption for Manufacturing Facilities

MD Income Tax Credit for Green Buildings (Corporate)

MS Energy Investment Loan Program

NC Energy Improvement Loan Program

OR Business Energy Tax Credit

OR Energy Trust of Oregon - Industrial Production Efficiency Program

PA Pennsylvania Energy Development Authority Grants 

VT Clean Energy Development Fund Loan Program

WI Focus on Energy - Commercial/Industrial Efficiency Incentives

Source: DSIRE 2009

 

23 Note that ARRA-related funds are not explicitly covered here, as a result of early stage of implementation of the 

programs.

4.1.1 Policy Evolution
32

In addition to the specific programs listed in Table 14, general state funding programs that comprise 

energy efficiency are also available to the industrial sector (Table 15). These programs, typically funded 

by utility tariffs, oil overcharge, and/or nuclear waste storage agreement tariffs, provide a source of stable 

funding for loans, grants, education, and public information programs. For industrial audiences, these 

funds can be used to recruit energy-efficient industries to the state, and help industries defray the capital 

cost of energy-efficient investments. 

Table 15: Program Funding with Industry Applicability

State Program

CT New Energy Technology Program

MA Energy Efficiency Fund (PBF)

ME Efficiency Maine (PBF)

MI Low Income and Energy Efficiency Fund (PBF)

MT Universal System Benefits Program

NH System Benefits Charge

NJ Societal Benefits Charge

NY Systems Benefit Charge

OH Advanced Energy Fund

OR Oregon Energy Trust –PBF

PA Public Benefits Programs

RI Rhode Island Renewable Energy Fund

WI Focus on Energy (PBF)

VT Efficiency Vermont

VT Clean Energy Development Fund

Source: DSIRE 2009

Local Jurisdiction

Energy-efficiency incentive programs in local jurisdictions are often non-financial in scope. Historically, 

industrial energy efficiency at the local level was almost exclusively the realm of utilities, which offered 

energy audits to industries, after which companies privately implemented the efficiency 

recommendations. Today, utility programs are still the main driver for local industrial programs, but there 

are a number of emerging efficiency-related programs that relate to the primary goals of local 

governments: economic development and job creation. 

Unlike the state level, whose programs are funded by statewide fees and therefore can offer financial 

incentives, local governments face budgetary restrictions and focus instead on non-financial incentives to 

attract manufacturing and other industrial subsectors. Many companies are specifically targeting the 

emerging clean energy sector, and consequently are designing incentive policies that reward energyefficient industries. 

Researchers in the Twin Cities of Minneapolis and Saint Paul, for example, have developed 

recommendations for the cities to attract green manufacturing and other industries using both nonfinancial and very targeted and restricted financial incentives (Demma et al 2008). Based on experiences 

in other localities and states, the two non-financial incentives that the researchers recommend are 

expedited permitting and the creation of an information portal which informs industries of the benefits 

and opportunities of locating manufacturing plants within the jurisdiction. They also recommend the 

development of limited green zones where targeted financial incentives, which would be based on the 

number of new manufacturing jobs, can be used to attract new manufacturers. 
33

4.1.2 Policy Impact and Evaluation

The impacts of incentive programs vary widely and are generally not well understood or quantified. 

Moreover, none of the state incentive programs are specifically targeted toward industrial applications, 

and evaluations of the programs in terms of effectiveness at meeting the needs of the industrial sector 

have not been completed.

4.2 Technical Assistance

Technical assistance programs are designed to help industries identify strategies to reduce energy 

consumption, such as through energy audits and information campaigns. The intended outcome of such 

programs is to incorporate energy efficiency into systematic decision-making. This enables industries to 

“learn by doing.” The programs also extend beyond specific programs and businesses to encourage the 

industry more broadly to maintain their competiveness through improved efficiencies. 

4.2.1 Policy Status

Federal Jurisdiction

Federally–funded, industrial energy-efficiency programs encourage the adoption of technologies that 

increase efficiency at the plant level. While there are a number of these programs, the historical leading 

programs that partner with industry are: 

• Department of Energy Industrial Assessment Centers (IAC): The IAC program, started in 1976, 

is an innovative collaboration among stakeholders from the federal government, universities, and 

industry. The IAC program trains university engineers to perform industrial energy audits, estimate 

costs of implementation and financing, and design processes for follow-up in the field (i.e., at the 

industrial plant operations management level). This is a grass-roots level program to use combined 

public/private sector resources to assist plant and project-based teams to accomplish large-scale 

energy efficiency improvements. There are 26 IACs throughout the United States that have, to date, 

completed over 14,000 project audits and provided over 100,000 recommendations ranging from 

lighting upgrades to capturing and converting waste heat to electricity. More information is available 

at: http://www1.eere.energy.gov/industry/bestpractices/about_iac.html.

• Leadership Programs. Because industries vary widely in energy intensity, there is a correspondingly 

broad range of possibilities to reduce energy use among different industries. The EPA runs voluntary 

programs in which companies commit to reducing environmental impacts. A key step in moderating 

environmental impacts is to increase energy efficiency, first at the plant level and successively 

company-wide. The EPA’s program is entitled ClimateLeaders and information can be found at 

www.epa.gov/climateleaders/.

• Industries in Focus: These programs offer tailored services on best practices and innovative energy 

saving ideas for industry. They also offer assistance in identifying funding resources for industry and 

recognize energy-efficiency leaders. More information is available at:

http://www.energystar.gov/index.cfm?c=in_focus.bus_industries_focus.

State Jurisdiction

Many of the general state efficiency funding programs described above (Table 15) can be made available 

to industries. In addition to financial incentives, these programs also offer energy audits and information 

on how to reduce energy consumption. 
34

4.2.2 Policy Impact and Evaluation

The IAC program has made a total of 105,656 energy-efficiency recommendations since 1981. 

Leveraging federal IAC funds,24

Investments in energy efficiency have also achieved benefits that extend beyond energy and financial 

savings. For example, in the plastics subsector, an IAC audit led to the implementation of energy savings 

equivalent to over $340,000 dollars annually ($100,000 over the original estimate). These investments 

had the ancillary benefit of reducing water consumption by over 1.5 million gallons annually (IAC 2006).

companies invested $461 million in implementing 47% (49,602) of the 

recommendations, with a resulting savings of $554 million (IAC 2009). 

In addition, overall industrial improvements can be captured through end uses in other industries, 

including commercial and residential sectors in motors and HVAC equipment. Because these 

improvements stem from efficiencies in industrial sector processes, the savings can be partially attributed 

to the federal and state programs. 

Rigorous program evaluation of technical assistance programs at the state level is lacking, but anecdotal 

evidence suggests a positive impact. As one example, Wisconsin’s “Focus on Energy” program provided 

a pulp and paper guidebook that increased awareness and implementation of efficiency practices 

(McKinsey 2009). 

One overarching barrier to successful industrial efficiency programs at any level of government is intraindustry cooperation. Industries are reluctant to share energy efficiency technology out of concern for 

both anti-trust laws and market competition.

4.3 Research and Development

Although this report focuses primarily on policies that promote market transformation and deployment 

strategies for energy efficiency technologies, the DOE sponsors a number of research and development 

programs across all sectors (buildings, transportation, industry, and power) through the Energy Policy Act 

of 2005, the Energy Independence and Security Act of 2007, and ARRA 2009. These are somewhat 

outside the scope of this report, but represent an important role for government and so are summarized for 

each sector. The DOE sponsors $90 million (FY09, not including ARRA funding) in R&D for the 

industrial sector, with an overall objective of 20% reductions in energy intensity from 1990 levels in 

energy-intensive industries by 2020. Specific research funding targets:

• Energy conversion and utilization, such as in gasification technologies, high-efficiency boilers, waste 

recovery heat exchangers, and cogeneration;

• Energy-intensive and high carbon dioxide-emitting processes, with the goal, for example, of 

producing high-quality iron without the use of metallurgical coke; and

• Resource recovery and utilization, such as through reductions in material use, improved materials 

recycling, improved use of wastes and byproducts, and identifying new markets for recovered 

materials (DOE 2009).

 24 Annual program expenditures vary widely, but approximate $4M in 2009.
35

5 Power Sector

The electric power sector consumes 40 quadrillion BTUs, or 40% of total primary U.S. energy, almost all 

of which overlaps with the primary end-users of the generated electricity—the building and industrial 

sectors (EIA 2008). Energy efficiency policies in the power sector address two concerns: production 

(plant efficiency) and consumption (end-use efficiency). This report focuses on the later—government 

policies that support the unique contribution of utilities to end-use efficiency. 

As electricity providers, utilities—regulated under either state or local jurisdiction—play a key role in the 

design and implementation of energy efficiency programs in the United States.25

The role of the federal government with regards to power-sector efficiency has been largely advisory. The 

federal government employs two primary techniques in this sector to encourage energy efficiency: 

legislation that requires states to consider certain policies, and funding for state energy-efficiency 

programs in states that adopt certain policies. The federal government also supports research and 

development related to many aspects of energy efficiency, including wire conductivity in electronics, the 

electricity grid, and power storage on the end user side, and efficiency of gas and steam turbines on the 

production side. 

Utilities have direct 

contact with customers and knowledge of customer needs in relation to electricity production and 

distribution capacity. Utilities can leverage this knowledge to develop pricing policies and incentive 

programs that help match demand with production on a temporal basis (hourly, daily, seasonally, etc.)

State governments have primary jurisdiction over utilities, with the exception of municipally-owned 

utilities and rural electric cooperatives. State-level energy efficiency policies are largely regulatory (as 

opposed to legislative), and implemented through state public utility commissions, whose commissioners 

are appointed by governors. Policies include both incentives and technical assistance. Many examples of 

technical assistance overlap with those already reviewed in the buildings, transportation, and industrial 

sectors, and are not revisited in this section.

Local governments have jurisdiction over municipally-owned utilities and rural electric cooperatives. 

Some of these utilities offer financial incentives, such as rebates and loans, for customers to adopt energyefficient technologies.

Table 16 summarizes the mapping of utility-related energy-efficiency policies by jurisdiction.

Table 16: Map of Utility-based Energy Efficiency Policies by Jurisdiction

Federal State Local

Incentives Advisory Some Some

Research and development Yes Some None

Technical Assistance No26 Some Some

The following sections summarize the incentive programs and provide an overview of DOE’s funding for 

R&D.

 25 Others in this arena include energy service companies (ESCOs) and governments. 26 Federal programs that help utilities improve plant and grid efficiency through advances in R&D, such as DOE's 

Distributed Energy and Electric Reliability Program, are not reviewed in this report.
36

5.1 Incentives

One of the key methods for reducing energy consumption is to change the incentives of:

• End-users—by making the price of electricity dependent on both the time of day and total electricity 

usage; by subsidizing the purchase of efficient technologies; and by enabling efficiency investments 

through on-bill loans and tariff-based financing 

• Utilities—by disassociating profits from sales volume, and instead linking profits to reductions in 

energy demand. 

End-users. One type of incentive for end-users focuses on reducing peak electricity demand. The price 

of electricity for end-users is constant throughout the year, despite potentially drastic seasonal and hourly 

changes in costs to the utilities to provide this electricity. With more accurate time-based price signals and 

information feedback—which will become available with smart meters—end-users have a financial 

incentive to reduce electricity demand during peak periods, when electricity costs are most expensive. 

A second type of incentive aimed at end-users targets total electricity demand. One example is a tieredpricing structure that increases the cost of electricity for incrementally larger blocks of electricity 

consumption. For example the price of electricity for the first 500 kWh consumed in a month is 

$0.08/kWh, whereas the price of electricity consumed for the next 500kWh in that month is $0.12/kWh. 

This price signal encourages end-users to reduce total demand. 

A third type of utility-based incentive, which also seeks to reduce total electricity demand, is direct 

financial incentives including rebates and loans to help subsidize the cost of purchasing energy audits and 

efficient technologies such as light bulbs and appliances. One type of loan—on-bill and tariff-based—

allows consumers to repay energy-efficiency upgrades through their utility bills. Utilities pay for the 

upgrade (e.g., insulation, lighting), and require consumers to either repay the costs through a loan, which 

consumers would need to repay even if they moved, or through a higher tariff, which would remain with 

the house. Eligible upgrades are restricted to those in which the energy cost savings exceed the monthly 

principal and interest repayments on the upgrade loan. These types of end-user incentives are a few 

examples of a broader collection of utility-sponsored “demand-side management” programs. 

Utilities. Historically in the United States, utility revenues are based on volumetric sales of electricity, 

creating a financial incentive to sell greater volumes of electricity (commonly called the “throughput 

incentive”), and a disincentive for utilities to support energy-efficiency programs. In efforts to align 

utilities’ financial incentives with the benefits of energy efficiency to the public, state and sub-state 

regulatory bodies that have jurisdiction over utilities have developed multiple solutions to reverse this 

disincentive, with varying success. 

One successful example of regulatory change is to disassociate utility profits from sales volume; this is 

called “decoupling.” Under decoupling, utilities receive differing rates (per kWh) depending on total 

electricity demand. If demand increases above a state-identified target, the rates fall; if demand decreases, 

rates rise. In this way, utilities have a financial incentive to help end-users reduce energy demand to 

receive higher per kWh rates, e.g., by providing end-user financial incentives (such as subsidized energy 

audits and energy-efficient appliances), or by providing technical assistance and information on how to 

reduce demand. 
37

5.1.1 Policy Evolution

Federal Jurisdiction

In the power sector, the role of the federal government has largely been advisory, but key legislations 

have strengthened this advisory role. For example, with the issuance of the Public Utility Regulatory Act 

of 1978 (PURPA), the federal government required state and sub-state utility regulatory boards to 

consider certain programs and policies suggested by federal legislation. In this way, the states maintained 

jurisdiction of regulating utilities, but the federal government had a role in requiring that regulatory 

boards consider widespread improvements in energy efficiency and renewable energy (commonly called, 

“states-must-consider” legislation) (Persons 1995). Both EPAct2005 and EISA2007 have expanded the 

original PURPA to include new states-must-consider legislation. In practice, some states extensively 

adopt the federal government’s proposed legislation; other states have considered and rejected the 

suggestions.

Another key legislation that has strengthened the advisory role of the federal government is ARRA 

(2009). This legislation requires governors to at least annually seek to implement processes that will lead 

to the alignment of utility incentives with energy efficiency in order to receive SEP grant funding in 

upcoming years. This provision was generalized to include a broader set of incentive alignment strategies 

from an earlier version that requires decoupling utility revenues from volumetric electricity sales, a 

practice already in place in some states (detailed under “State Jurisdiction” below). 

An emerging trend in federal energy legislation builds upon highly successful renewable portfolio and 

energy efficiency resource standards at the state level. These mechanisms mandate that utilities or other 

load serving entities reduce electricity consumption, typically by a percentage of baseline energy use 

using a standard methodology to calculate savings. Utilities then use cost-effective options to fulfill the 

mandate, or provide an alternative minimum payment. In the 2008-2009, U.S. legislative session, House 

Resolution 245427 and Senate Bill 146228

Another emerging policy trend is to establish a comprehensive, stakeholder-based policy implementation 

plan, such as the National Action Plan for Energy Efficiency (

are examples of this strategy. At the time of this reporting, both 

bills are in committee review. 

Text Box ). In this strategy, the federal 

government does not mandate policy changes, but facilitates a wide consensus among public and private 

sectors on policy steps needed to advance energy efficiency.29

Table 17 summarizes federal legislation applied to the power sector. 

 27 The current status of the bill can be found at: http://thomas.loc.gov/cgi-bin/bdquery/z?d111:h.r.00889: 28 The current status of the bill can be found at: http://thomas.loc.gov/cgibin/bdquery/z?d111:SN00548:@@@L&summ2=m&

29 Another example of a policy that has been implemented vertically through jurisdictional levels and broadly across 

economic sectors is the federally-driven environmental policy, Title 40 “Protection of the Environment”

(http://www.epa.gov/lawsregs/search/40cfr.html), which governs a diverse range of pollution sources.
38

Text Box 3

National Action Plan for Energy Efficiency

The National Action Plan for Energy Efficiency (Action Plan) is a public-private partnership established 

with a central goal of leveraging opportunities to improve energy efficiencies in the gas and electric 

power sectors. The Action Plan is led by DOE and EPA and includes over 100 electricity and gas 

utilities, consumer advocates, and government and regulatory agencies. The stakeholder partnership 

envisions, plans, implements, and tracks progress toward adopting recommendations to increase 

energy efficiency. 

The recommendations developed by the stakeholder group are not mandatory. However, the 

stakeholders include all affected parties, and their recommendations therefore represent an acceptable 

compromise for many. In addition, the collaborative approach allows for creative ideas without fear of 

regulatory action. 

In 2006, the 100 stakeholders developed the following overarching recommendations to utilities and 

commissioners interested in maximizing energy efficiency:

• Recognize energy efficiency as a high-priority energy resource. 

• Make a strong, long-term commitment to implement cost-effective energy efficiency as a resource. 

• Broadly communicate the benefits of and opportunities for energy efficiency. 

• Promote sufficient, timely, and stable program funding to deliver energy efficiency where costeffective.

• Modify policies to align utility incentives with the delivery of cost-effective energy efficiency and 

modify ratemaking practices to promote energy efficiency investments.

To carry out these recommendations, the Action Plan stakeholders develop and exchange policy 

suggestions, definitions of best practices, case studies, and analyses of potential impacts of policy 

changes to support ten specific sector-based goals: 

1. Establishing cost-effective energy efficiency as a high-priority resource

2. Developing processes to align utility and other program administrator incentives such that efficiency 

and supply resources are on a level playing field

3. Establishing cost effectiveness tests

4. Establishing evaluation, measurement, and verification mechanisms

5. Establishing effective energy efficiency delivery mechanisms

6. Developing state policies to ensure robust energy efficiency practices

7. Aligning customer pricing and incentives to encourage investment in energy efficiency

8. Establishing state-of-the-art billing systems

9. Implementing state-of-the-art efficiency information sharing and delivery systems

10. Implementing advanced technologies.

Finally, the Action Plan creates a centralized body of programmatic information, evaluation methods 

and informative impact assessments, as well as opportunities for peer-level exchange on energy 

efficiency and progress tracking, available to both collaborative members and the general public on the 

Web site http://www.epa.gov/cleanenergy/energy-programs/napee/index.html. 
39

Table 17: Federal Regulations related to Energy in the Power Sector

Policy Description Citation

Department of Energy 

Organization Act of 1977

Establishes the Federal Regulatory Commission, 

an independent body that regulates interstate 

electricity sales and other interstate policy issues. 

84 USC

Public Utility Regulatory 

Power Act of 1978

Requires electric utilities to buy power from nonutility electric power producers at the "avoided 

cost" rate, which is the cost the electric utility 

would incur were it to generate or purchase from 

another source. 

Extends FERC jurisdiction over small power plant 

production and cogeneration. 

16 U.S.C. Sections 

2601-2645

Energy Policy Act of 2005 

(EPAct05)

Amends PURPA section 111d to require utilities 

to make available net metering, smart meters, 

and peak-load reduction agreements (EPAct 05 

Section 1251).

42 USC, PL 109-58

Energy Independence and 

Security Act of 2007 (EISA 

2007)

Adds four “states-must-consider” standards to 

PURPA in EISA 2007 Sections 532 and 1307, 

including integrated resource planning, rate 

design modification to promote energy efficiency 

investments, consideration of smart grid 

investments, and smart grid information.

42 USC, PL 110-

140

American Recovery and 

Reinvestment Act of 2009 

(ARRA 2009)

Requires governors to begin the process of 

aligning utility incentives with energy efficiency in 

order to receive state energy program grant 

funding (42 U.S.C. 6321 et seq.).

Section 410(1)

State Jurisdiction

Public utility commissions regulate at the state level all utilities that are within their jurisdiction, which 

typically include all of the private investor-owned utilities (IOUs) in the state. Municipal utilities and 

rural electric co-operatives are regulated separately, and are discussed under “local jurisdiction.”

The primary power-sector, state-level regulation pertaining to energy efficiency recently has been to 

decouple utility sales revenues from volumetric electricity sales. When well designed, decoupling 

provides an incentive for utility companies to invest in energy efficiency without the risk of revenue loss. 

California has maintained one of the most notable successes in decoupling since 1981 (Risser 2006). 

Decoupling provided an incentive for utilities to design and implement cutting-edge energy-efficiency 

programs, which resulted in extensive efficiency gains (Risser 2006, Eto et al. 1997), and contributed to 

the stabilization of consumption intensity in the state (Rosenfeld 2003). Since then nine states have 

adopted variations of California’s decoupling program to fit different state needs and priorities (Sedano 

2009, Action Plan 2008, see specifically Appendix A of that document). Five states have pending 

regulation or legislation regarding decoupling (Figure 7). 
40

Figure 7: Electric Decoupling Activities in the United States as of May 2009

Other state policies in the power sector are summarized in a report by the National Action Plan for Energy 

Efficiency. The Action Plan lists the current status of state policies relative to the Plan’s ten 

implementation goals (Table TB-1 from Action Plan 2008, reprinted in Appendix C). Subsequent 

updates will illustrate progress toward the Action Plan goals. 

Local Jurisdiction

The two types of utilities regulated at the local level are municipal and rural electric cooperatives. Both of 

these types of utilities frequently offer energy efficiency programs across all end-use sectors, both to 

promote efficient use of energy and avoid building power plants or purchasing expensive additional 

power. 

Municipal Utilities. Municipal utilities operate as a branch of local government. Their utility programs 

are often highly targeted to the specific needs of the municipality. For example, the Sacramento 

Municipal Utility District (SMUD) offers product rebates and loans in the residential and commercial 

sectors in order to serve the broad needs of constituents, some of whom require financing support and 

some of whom require capital-cost reduction (SMUD 2009). Some municipalities model their programs 

on or partner with larger area utilities to develop co-branded products. For example, CoolAdvantage, an 

air conditioner rebate program, is implemented by the New Jersey Bureau of Public Utilities, and also 

used and co-branded by Atlantic City Electric (a municipal utility) (NJ Clean Energy 2009). In this way, 

municipal utilities can leverage limited resources. 
41

Electric Cooperatives. Electric cooperatives are member-owned. A subset of these, Rural Electric 

Cooperatives (Co-op), are regulated by their member owners through the periodic election of a Co-op 

Board, which serves as the regulatory body. In this way, the Co-ops function somewhat like municipal 

utilities and can closely reflect the wishes and needs of the local communities. The Kauai (Hawaii) Co-op, 

for example, provides residential and commercial customers with energy efficient loans and rebates, as 

well solar water heating programs to take advantage of the island’s solar resources (KIUC 2009).

5.1.2 Policy Impact and Evaluation

The effectiveness of the “states-must-consider” approach in terms of improving energy efficiency is 

challenging to track due to the various ways the suggested policies are integrated at the state level. 

Decoupling as a policy tool has been more extensively evaluated. That only a minority of states have 

adopted decoupling is the result of multiple factors, including some notable implementation challenges. 

Transforming the business models of utilities is a fundamental change, and the regulatory language of 

decoupling can be complicated and create unintended results. 

In Maine, for example, decoupling was implemented in 1991, and ended less than a year later as a result 

of a large requested rate increase associated, in part, with the decoupling program. Scholars agree that 

poor design of the decoupling program was the culprit. The design of the program did not allow for 

changes in weather to be incorporated into the calculation of expected revenue for the utility, and so a 

mild winter compared with the base year resulted in a large windfall for the utility (Hudson et al 1995). 

Successful policy design must also include an evaluation of state and stakeholder priorities, in order to 

establish buy-in and minimize the opportunities for failure.

5.2 Research and Development

Although this report focuses primarily on policies that promote market transformation and deployment 

strategies for energy efficiency technologies, the DOE sponsors a number of research and development 

programs across all sectors (buildings, transportation, industry, and power) through the Energy Policy Act 

of 2005, the Energy Independence and Security Act of 2007, and ARRA 2009. These are somewhat 

outside the scope of this report, but represent an important role for government and so are summarized for 

each sector. The DOE sponsors $100 million (FY09, not including ARRA funding) in R&D for the power 

sector, including research on:

• High-temperature superconductivity (HTS) wires, which have 100 times the capacity of conventional 

wires, and the use of HTS in a wide range of equipment;

• Transmission and distribution, including technologies to improve reliability and facilitate customer 

participation in electricity markets; and

• Energy storage, with one goal of reducing peak demand and power quality disturbances, and a second 

goal of improving storage for stationary applications, such as renewable energies (DOE 2009).
42

6 Discussion: Trends in Energy Efficiency Policy 

Development 

This report catalogues federal, state, and local energy efficiency policies in the buildings, transportation, 

industrial, and power sectors from the 1970’s forward, and identifies some prominent policy trends. This 

effort is a first step toward informing stakeholders—legislators, regulators, and business and consumer 

groups—about individual programs and policies, in anticipation of increased policy integration in the 

future. Four key observations based on research for this report are summarized below.

1. Leadership on energy efficiency is necessary—and is found—at each level of government. 

Policies initiated at state and local levels, within diverse political and economic contexts, can inform 

how similar policies can be employed and scaled-up in other places and jurisdictions. California, for 

example, has repeatedly designed efficiency programs that have served as models elsewhere. Federal 

leadership is also key, not only for the benefit of consumers and manufacturers, but also to provide 

the impetus for the country as a whole to realize its energy efficiency potential in order to improve the 

economy, environment, and national security.

2. There is no widely accepted methodology for evaluating energy efficiency policies.

Measuring policy impact is critical for evaluating the effectiveness of policies at all levels of 

government. But such measurement is difficult due to the overlapping nature of policy 

implementation, the lack of coordination of intended impacts, and the challenge of calculating and 

attributing whether actual energy savings result from a particular policy.

3. Coordination among the three levels of government—and across sectors—is increasingly important, 

and there are opportunities to significantly improve policy performance through a unified strategy. 

There is currently no comprehensive policy strategy for energy efficiency in the United States. 

Policies are conceived within narrow political constraints based on some specific need, and without a 

thorough consideration of the policies’ interaction with other policies. The result is a geographically 

and economically fragmented patchwork of tactics and policy design, which, in turn, contributes to 

regulatory uncertainty and private-sector inaction.

As the economy grows increasingly connected—particularly when technological innovations like the 

Smart Grid affect all sectors—the interaction among these policies becomes more important. A 

strategic approach to improving energy efficiency in the United States would coordinate efforts across 

jurisdictions and sectors, and would necessarily consider broad questions such as:

1. What barriers to energy efficiency are insufficiently addressed by current policies among the 

three levels of government?

2. What areas of policy jurisdiction overlap among the three levels of government, and which policy 

features are appropriate to implement at each governmental level?

3. How can policies that cross different levels of government accommodate differing policy drivers?

4. What methods can best be used to measure impacts—intentional and unintentional—of energy 

policies?
43

Stakeholder-led efforts are one avenue to meet the challenge of these questions. This approach has 

already been successfully demonstrated, e.g., in the National Action Plan for Energy Efficiency. As 

discussed in Text Box 3, a wide array of Action Plan stakeholders—including different levels of 

government—identified policy strategies that drew from their various strengths, interests, and 

capabilities, and in this way resulted in a strategy that provides useful coordination and internal 

consistency between policies at all three levels. This approach requires strong leadership from a 

central body, in this case the EPA, as well as a commitment from stakeholders to a sustained, 

collaborative process. Such methods have been successfully implemented in other countries, and a 

study of these cases, such as may be available through the International Partnership for Energy 

Efficiency Cooperation and other multilateral collaborations, may be useful in crafting approaches to 

policy integration.

4. There are efficiencies to be gained by informing policies in one sector with experience from others. 

In each sector, similar energy policy tools are employed—baseline standards, beyond-baseline 

incentives, labeling, technical assistance, and public leadership—but the relative use of each tool 

within overall policy varies significantly by sector. These differences reflect a number of factors, 

including the relative strengths of governing jurisdictions, political expediency, and technological and 

economic limitations (e.g., it is easier to define, measure, and label the efficiency of standardized 

vehicles than of unique building constructions). A more effective policy approach to energy 

efficiency would find ways to move beyond these established constraints toward a comprehensive 

assessment of energy efficiency barriers and the policies needed to address them.
44

Appendix A: Statewide Building Code Status

Summary status of statewide building codes for commercial and residential standards, including states with “Lead 

by example” efficiency standards for public buildings, and effective year. 

Statewide Building Codes Lead by example

State Commercial Residential Effective Year

AK

AL 2006

AR 2003 IECC/ ASHRAE 90.1-2001 2003 IECC 2005

AZ 2005

CA ASHRAE 90.1-2007 2006 IECC 2007

CO 2005/2007

CT 2003 IECC/ ASHRAE 90.1-2001 2003 IECC 2007

DC 1998-2001 IECC 2004

DE 2001IECC/ ASHRAE 90.1-1999 or eq (EPCA) 1998-2001 IECC 2004

FL ASHRAE 90.1-2007 1998-2001 IECC 1974

GA 2006 IECC/ ASHRAE 90.1-2004 2006 IECC

HI 2008

IA 2006 IECC/ ASHRAE 90.1-2004 2006 IECC 2008

ID 2006 IECC/ ASHRAE 90.1-2004 2006 IECC

IL 2006 IECC/ ASHRAE 90.1-2004 2005

IN Pre-1998 IECC 2008

KS 2007

KY 2006 IECC/ ASHRAE 90.1-2004 2006 IECC 2005

LA 2006 IECC/ ASHRAE 90.1-2004 2006 IECC 2007

MA ASHRAE90.1-2007 2006 IECC 2007

MD 2006 IECC/ ASHRAE 90.1-2004 2006 IECC 1992

ME 2006 IECC/ ASHRAE 90.1-2004 2003

MI 2001 IECC/ ASHRAE 90.1-1999 or eq (EPCA) 2006 IECC 2007

MN Pre-1998 IECC 2005

MO 1993

MS

MT 2003 IECC/ ASHRAE 90.1-2001 2003 IECC

NC 2006 IECC/ ASHRAE 90.1-2004 2003 IECC 2007

ND Pre-1998 IECC

NE 2003 IECC/ ASHRAE 90.1-2001 2003 IECC
45

Summary status of statewide building codes for commercial and residential standards, including states with “Lead 

by example” efficiency standards for public buildings, and effective year. 

Statewide Building Codes Lead by example

State Commercial Residential Effective Year

NH 2006IECC/ ASHRAE90.1-2004 2006 IECC 2005

NJ 2006 IECC/ ASHRAE 90.1-2004 2006 IECC 2002

NM 2006IECC/ ASHRAE 90.1-2004 2006 IECC 2007

NV 2006 IECC/ ASHRAE 90.1-2004 2006 IECC 2008

NY 2006 IECC/ ASHRAE 90.1-2004 2006 IECC 2001

OH 2003 IECC 2007

OK 1998-2001 IECC 2008

OR 2006 IECC/ ASHRAE 90.1-2004 2006 IECC 2008

PA 2006IECC/ ASHRAE90.1-2004 2006 IECC 2004

RI 2006IECC/ ASHRAE90.1-2004 2006 IECC 2005

SC 2006IECC/ ASHRAE90.1-2004 Pre-1998 IECC 2007

SD Pre-1998 IECC 2008

TN Pre-1998 IECC 2008

TX 2003 IECC/ ASHRAE 90.1-2001 1998-2001 IECC 2001

UT 2006 IECC/ ASHRAE 90.1-2004 2006 IECC 2006

VA 2006 IECC/ ASHRAE 90.1-2004 2007

VT 2006 IECC/ ASHRAE 90.1-2004 1998-2001 IECC

WA 2006 IECC/ ASHRAE 90.1-2004 2006 IECC 2005

WI 2006 IECC/ ASHRAE 90.1-2004 Pre-1998 IECC 2006

WV 2003 IECC/ ASHRAE 90.1-2001 2003 IECC

WY

USA 2005

Source: DSIRE 2009
46

Appendix B: State Incentives and Regulations in the 

Transportation Sector

State Incentives State Regulations

State

HOV Exemption

AFV Rebate

(with EE)

Emissions

Reduction Grants

HEV/HE Vehicle

Tax Incentives

Idle Reduction 

Incentives

Exemption

Emissions 

Testing

Manufacturing 

Incentives

R&D

Parking

Incentives

Lead By

Example

State Energy &

Climate Plan

Vehicle Labeling

Tire Inflation

Program

Idle Reduction

Rules

AK x

AR x x x

AZ x x

CA x x X x x x x x

CO x x x

CT x x x

DC x x

DE x

FL x x x x

GA x x

HI x x

IA x

ID x

IL X x x x

IN x

KS x

KY x

LA x

MD x x x x

ME x x

MI x x

MN x x x

MO x x

MS x

MT x

NC X x

NE x

NH x x

NJ x x x x x

NM x x x x

NV x

NY x X x x

OR X x x x

PA X x x

RI x x
47

State Incentives State Regulations

State

HOV Exemption

AFV Rebate

(with EE)

Emissions

Reduction Grants

HEV/HE Vehicle

Tax Incentives

Idle Reduction 

Incentives

Exemption

Emissions 

Testing

Manufacturing 

Incentives

R&D

Parking

Incentives

Lead By

Example

State Energy &

Climate Plan

Vehicle Labeling

Tire Inflation

Program

Idle Reduction

Rules

SC x x

TN x x X x

UT x x

VA x x X x

VT x X

WA X x x

WI x x X x X x

WV x

TOT 10 2 7 6 12 1 2 5 1 25 9 1 1 26

Source: 2009 AFDC Summary of State Incentives and State Regulations
48

Appendix C: Action Plan Progress Report

Progress in Meeting Implementation Goals as of December 2007.

Implementation Goal and Key Steps

States Having Adopted Policy

Electricity Natural Gas

Complete Partially Complete Partially

Goal One: Establishing Cost-Effective Energy Efficiency as a High-Priority Resource

1

Process in place, such as a state and/or regional 

collaborative, to pursue energy efficiency as a highpriority resource. 14 0 14 0

2 Policy established to recognize energy efficiency as 

high-priority resource. 21 22 8 8

3 Potential identified for cost-effective, achievable 

energy efficiency over the long term. 25 1 13 0

4

Energy efficiency savings goals or expected energy 

savings targets established consistent with costeffective potential. 15 3 5 2

5

Energy efficiency savings goals and targets 

integrated into state energy resource plan, with 

provisions for regular updates. 0 16 0 1

6 Energy efficiency savings goals and targets 

integrated into a regional energy resource plan.** TBD TBD TBD TBD

Goal Two: Developing Processes to Align Utility Such That Efficiency and Supply Resources 

Are on a Level Playing Field and Other Program Administrator Incentives

7 Utility and other program administrator 

disincentives are removed.

17 8 18 5

8

Utility and other program administrator incentives 

for energy efficiency savings reviewed and 

established as necessary.

10 5 5 2

9 Timely cost recovery in place.** TBD TBD TBD TBD

Goal Three: Establishing Cost-Effectiveness Tests

10 Cost-effectiveness tests adopted which reflect the 

long-term resource value of energy efficiency. 

29 2 9 0

Goal Four: Establishing Evaluation, Measurement, and Verification Mechanisms

11 Robust, transparent EM&V procedures established. 14 6 5 2

Goal Five: Establishing Effective Energy Efficiency Delivery Mechanisms

12

Administrator(s) for energy efficiency programs 

clearly established. 24 2 13 1

13 Stable (multi-year) and sufficient funding in place 

consistent with energy efficiency goals. 4 9 2 4

14

Programs established to deliver energy efficiency to 

key customer classes and meet energy efficiency 

goals and targets. 24 2 7 0

15

Strong public education programs on energy 

efficiency in place. 18 5 13 6

16

Energy efficiency program administrator engaged in 

developing and sharing program best practices at 

the regional and/or national level.

30 0 18 0
49

Implementation Goal and Key Steps

States Having Adopted Policy

Electricity Natural Gas

Complete Partially Complete Partially

Goal Six: Developing State Policies to Ensure Robust Energy Efficiency Practices

17 State policies require routine review and updating 

of building codes. 28 13 28 13

18 Building codes effectively enforced.** TBD TBD TBD TBD

19 State appliance standards in place. 11 0 11 0

20 Strong state and local government lead-by example 

programs in place. 13 24 13 24

Goal Seven: Aligning Customer Pricing and Incentives to Encourage Investment in Energy 

Efficiency

21 Rates examined and modified considering impact 

on customer incentives to pursue energy efficiency. 7 5 2 0

22 Mechanisms in place to reduce consumer 

disincentives for energy efficiency (e.g., including 

financing mechanisms). 4 1 0 0

Goal Eight: Establishing State of the Art Billing Systems

23

Consistent information to customers on energy use, 

costs of energy use, and options for reducing 

costs.**

TBD TBD TBD TBD

Goal Nine: Implementing State of the Art Efficiency Information Sharing and Delivery Systems

24 Investments in advanced metering, smart grid 

infrastructure, data analysis, and two-way 

communication to enhance energy efficiency. 5 29 *** ***

25

Coordinated energy efficiency and demand 

response programs established by customer class 

to target energy efficiency for enhanced value to 

customers.** TBD TBD *** ***

26 Residential programs established to use trained 

and certified professionals as part of energy 

efficiency program delivery. 9 0 9 0

Goal Ten: Implementing Advanced Technologies

27

Policies in place to remove barriers to combined 

heat and power. 11 24 *** ***

28 Timelines developed for the integration of 

advanced technologies.** TBD TBD TBD TBD

* See Action Plan 2007, Appendix D for additional information on how these numbers have been determined. ** See 

Action Plan Appendix D for discussion of why progress on this policy step is not currently measured. ***Steps 24, 

25, and 27 do not apply to natural gas. TBD = To be determined

SOURCE: Replicated from Table ES-1 in Action Plan 2008
50

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December 2009

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Energy Efficiency Policy in the United States: Overview of Trends at 

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E. Doris, J. Cochran, and M. Vorum

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14. ABSTRACT (Maximum 200 Words)

This report catalogs by sector—buildings, transportation, industrial, and power—energy efficiency policies at the federal, 

state, and local levels, and identifies some prominent policy trends. Four key findings emerged from this report: 1) 

leadership on energy efficiency is necessary—and is found—at each level of government; 2) there is no widely accepted 

methodology for evaluating energy efficiency policies; 3) coordination among the three levels of government—and 

across sectors—is increasingly important, and there are opportunities to significantly improve policy performance 

through a unified strategy; and 4) there are efficiencies to be gained by informing policies in one sector with experience 

from others.

15. SUBJECT TERMS

energy efficiency; EE; energy efficiency policy; buildings energy; transportation; industrial sector; power sector;

energy analysis; federal energy policy; state energy policy; energy policy; NREL; Elizabeth Doris; Jaquelin Cochran; 

Martin Vorum

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