Conference Paper

NREL/CP-6A2-45970

July 2009

Energy Savings Certificate 

Markets: Opportunities and 

Implementation Barriers

Barry Friedman and Lori Bird

National Renewable Energy Laboratory

Galen Barbose

Lawrence Berkeley National Laboratory

Presented at the American Society of Mechanical Engineers (ASME) 

Third International Conference on Energy Sustainability

San Francisco, California

July 19-23, 2009
NOTICE

The submitted manuscript has been offered by an employee of the Alliance for Sustainable Energy, LLC 

(ASE), a contractor of the US Government under Contract No. DE-AC36-08-GO28308. Accordingly, the US 

Government and ASE retain a nonexclusive royalty-free license to publish or reproduce the published form of 

this contribution, or allow others to do so, for US Government purposes.

This report was prepared as an account of work sponsored by an agency of the United States government. 

Neither the United States government nor any agency thereof, nor any of their employees, makes any 

warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or 

usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not 

infringe privately owned rights. Reference herein to any specific commercial product, process, or service by 

trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, 

recommendation, or favoring by the United States government or any agency thereof. The views and 

opinions of authors expressed herein do not necessarily state or reflect those of the United States 

government or any agency thereof.

Available electronically at http://www.osti.gov/bridge

Available for a processing fee to U.S. Department of Energy

and its contractors, in paper, from:

U.S. Department of Energy

Office of Scientific and Technical Information

P.O. Box 62

Oak Ridge, TN 37831-0062

phone: 865.576.8401

fax: 865.576.5728

email: mailto:reports@adonis.osti.gov

Available for sale to the public, in paper, from:

U.S. Department of Commerce

National Technical Information Service

5285 Port Royal Road

Springfield, VA 22161

phone: 800.553.6847

fax: 703.605.6900

email: orders@ntis.fedworld.gov

online ordering: http://www.ntis.gov/ordering.htm

Printed on paper containing at least 50% wastepaper, including 20% postconsumer waste
1

ENERGY SAVINGS CERTIFICATE MARKETS: OPPORTUNITIES AND 

IMPLEMENTATION BARRIERS

Barry Friedman

National Renewable Energy 

Laboratory

Golden, CO, USA

Lori Bird

National Renewable Energy 

Laboratory

Golden, CO, USA

Galen Barbose

Lawrence Berkeley National 

Laboratory

Berkeley, CA, USA

ABSTRACT

Early experiences with energy savings certificates (ESCs) 

have revealed their merits and the challenges associated with 

them. While in the United States ESC markets have yet to gain 

significant traction, lessons can be drawn from early 

experiences in the states of Connecticut and New York, as well 

as from established markets in Italy, France, and elsewhere. 

The staying power of European examples demonstrates that 

ESCs can help initiate more efficiency projects. This article 

compares ESCs with renewable energy certificates (RECs), 

looks at the unique opportunities and challenges they present, 

and reviews solutions and best practices demonstrated by early 

ESC markets. Three major potential ESC market types are also 

reviewed: compliance, voluntary, and carbon. Additionally, 

factors that will benefit ESC markets in the United States are 

examined: new state EEPS policies, public interest in tools to 

mitigate climate change, and the growing interest in a voluntary 

market for ESCs. 

Keywords: energy efficiency, energy savings certificates, 

white certificates, white tags, efficiency market, carbon, 

renewable energy certificates

1. INTRODUCTION

The concept of creating and trading verified fixed units of 

energy savings, through energy efficiency or load management, 

has been proffered as a vehicle to increase the amount of 

savings implemented in the United States. However, the 

country only started to adopt energy savings certificates (ESCs) 

in 2006. ESCs, the energy savings analog to renewable energy 

certificates (RECs), have the potential to bring the same 

market-based flexibility to energy efficiency that RECs have 

brought to renewable energy. 

To date, four U.S. states, three European countries, and New 

South Wales have incorporated ESCs into policies that establish 

energy efficiency targets, often referred to as energy efficiency 

portfolio standards (EEPS). In addition, the European 

Commission is examining whether it should propose an ESC 

trading scheme across Europe. In the United States, only 

Connecticut is actively trading ESCs. 

This article explores how ESC trading can work in the 

United States using the Connecticut example as a model, and 

takes a closer look at each design feature using European 

examples. These components include rules for the types of 

projects for which ESCs can be issued; the parties who can buy 

and sell them; rules for issuing ESCs, tracking their ownership, 

and retiring them; rules for who can verify and certify that a 

given ESC is what it purports to be; and the monitoring and 

verification (M&V) protocols to be used for that verification. 

Policy makers in other states and actors in voluntary markets

can observe how these various elements are treated in existing 

ESC schemes, and how each translates into the desired result: 

increased cost-effective energy savings activities. 

2. DEFINITION AND PARAMETERS OF USE

An ESC is an instrument representing a unit of energy 

savings that has been measured and verified. ESCs allow 

parties to trade the attributes of energy savings, representing an 

ownership right to the bundle of societal and environmental 

benefits created by the fixed quantity of energy savings with 

which the ESC is associated. 

An ESC can be represented in units of electricity savings, 

such as 1 megawatt hour (MWh); or in common energy units 

that enable direct comparisons between gas efficiency and 

electricity savings, such as British thermal units or tons of oil 

equivalent. ESCs can be designed to incorporate estimated 

savings over the expected lifetime of the efficiency measure or 

to represent energy savings accrued annually. Assigning 1 

MWh to an ESC simplifies its use, making it more easily 

comparable to a REC [1] and aligning it with most EEPS 

policies in the United States, which focus on electricity savings.
2

ESCs can be used to buy and sell their societal and 

environmental benefits as a separate commodity, either 

bilaterally or at auction, with the bundle of benefits belonging 

to each successive owner. The ESC is credited to the owner of 

the ESC when it is retired, and that owner may make the 

associated claims concerning the energy savings. Similar to 

RECs, ESCs are intended to be retired only once, for one 

purpose only. Figure 1 presents the various stages involved in 

the life cycle of ESCs. 

FIGURE 1: STEPS IN ESC TRADING SCHEMES

2.1 ESCs compared to RECs

REC markets have shown that there may be potential to 

broaden and integrate markets for tradable commodities that 

represent a public good and an opportunity for consumers to 

“vote with their wallets.” ESCs can benefit from the traction 

that RECs have gained in the marketplace, along with the 

existing infrastructure developed for REC markets, such as 

tracking systems. These systems could be relatively easily 

modified to accommodate ESC trading. ESCs can also benefit 

from existing M&V protocols and other data acquired through 

long-standing efficiency and public benefit programs. 

However, with a somewhat different value proposition, it is 

unclear whether ESCs will mirror RECs market progress.

2.2 ESC Interaction with REC Markets and RPS / 

EEPS Policy

ESCs can interact with REC and RPS markets in a number 

of ways. If ESCs are denominated in MWh units and represent 

electricity savings, they potentially could be used 

interchangeably with RECs in voluntary REC markets. 

Consumers could purchase ESCs to offset each MWh of 

electricity consumed, similar to how RECs are used by 

customers today. They also could be used essentially 

interchangeably with RECs in those compliance markets in 

which both efficiency and renewables are eligible to meet a 

single target. 

The amount of efficiency stimulated by an EEPS or RPS

policy is a function of the cost of efficiency compared with the 

resources against which the efficiency competes. The tier 

structure—and specifically what other resources are in a given 

tier together with energy savings—is an important design 

element of any RPS or EEPS policy. 

In cases where both efficiency and renewables can be used to 

meet the same portfolio standard, the introduction of ESCs 

could streamline the compliance process through a more liquid 

market by combining REC and ESC trading into a single 

platform and tracking registry. 

3. BENEFITS OF ESCs

As a tradable commodity, the main benefit of ESCs is their 

potential to free market forces to drive capital and capabilities 

to energy savings opportunities. 

Most would agree that if the benefits of private markets can 

result in greater energy savings, then public benefits accrue. 

ESCs offer a tool to reduce payback periods and thereby 

encourage more energy efficiency projects to move forward. 

The benefits of energy savings and energy efficiency are well

understood, including reduced emissions from fossil fuelgenerated electricity that contribute to climate change, acid 

rain, and smog and other health effects; reduced water 

consumption; increased energy security; and improved 

ecosystems. 

The decrease in electricity and fossil fuel demand brought 

about by efficiency also benefits the economies by delivering 

cost savings. The cost savings created by efficiency may serve 

to offset the higher energy prices resulting from a cap-and-trade 

system [2]. The economic benefits of energy efficiency can be 

particularly important to impoverished households 

disproportionately affected by increasing energy costs. 

Additionally, improved energy efficiency can provide a 

competitive edge for businesses in difficult economic climates 

[3].

3.1 Market Benefits

ESCs have potential benefits for both voluntary and 

compliance markets, such that the owner who retires an ESC 

may do so for private purposes, such as reducing a carbon 

footprint, or to comply with a legal obligation, such as an 

EEPS. In some cases, an ESC may be used as a tool to 

demonstrate a reduction in carbon emissions. An ESC also can 

be an accounting tool, used to demonstrate energy efficiency 

implementation, or eligibility for certain tax incentives or other 

public subsidies associated with implementing energy 

efficiency or load reduction [4]. 

3.2 Third-party Benefits

ESCs can enable energy efficiency to be acquired more costeffectively. For example, by opening up trading to third parties, 

ESCs could increase participation by private energy service 

companies (ESCOs) in state EEPS compliance markets—a 

Identify energy savings project

Determine baseline energy usage

Install efficiency measure

Third-party verification of savings

through metering / measurement, 

engineering estimates, deemed savings

Certification of ESC-eligible projects

Issuance of ESCs

Tracking ownership of ESCs

Retirement of ESCs
3

potential advantage because of ESCOs’ unique experience and 

expertise with energy efficiency projects and technologies. In 

some cases, private actors are better able than utilities to 

identify and access high-value energy efficiency opportunities 

because of their economic interest in reaching market segments 

and geographic regions not easily tapped by utilities. In some 

cases, ESCOs’ advantage may be simply a better ability to 

acquire energy efficiency savings at lower costs. 

A similar argument could be made for other third parties in 

optimal positions to implement energy efficiency, such as 

appliance manufacturers and retailers, commercial and 

industrial energy end users, aggregators for residential 

measures, and others. Trading programs that open markets to

third parties could see greater overall savings at a lower overall 

compliance cost, by virtue of empowering these third parties to 

derive value from ESCs. The competition also could result in 

utilities being pressured to implement their own programs more 

cost-effectively [5]. 

4. KEY STRUCTURAL ELEMENTS OF ESC 

PROGRAMS 

EEPS programs differ significantly in how broadly they 

define project eligibility, and they are not always consistent. In 

some cases, ESCs may be derived from projects that save 

energy by making use of thermal waste or another byproduct, 

such as combined heat and power (CHP). Certain project types, 

such as solar hot water systems and geothermal heat pumps, 

may be treated as renewable energy by one program and as 

efficiency in another. 

In some cases, EEPS and ESC regimes also may include 

demand-response or load-management measures that shift 

electricity load from peak to off-peak hours. Eligible project 

types and practices are listed in Table 1 and include smart 

metering, sensors to anticipate heating or cooling, or remote 

monitoring and control of various energy-intensive 

applications. 

Table 1. ESC Schemes and Eligible Project Types 

ESC Program, 

Year Effective Eligible Technology Types and Practices Major Stipulations

Connecticut, 2007

• CHP plants

• Demand response

• Load management

• Electricity suppliers must meet a 

percentage of their total supply in 

energy efficiency and CHP [6]

France, 2006

• Double glazing of windows

• Heating controls

• Insulation

• Lighting

• Variable speed motors

• Wood-firing heating systems

• Favors standardized measures with 

set energy savings; customized or 

less-common projects are assessed 

case-by-case.

Italy, 2005

• Bio-climatic architecture

• Control of radiation entering through windows

• Electricity in thermal uses

• Heating/cooling and heat recovery with nonrenewable energy

• On-site renewable energy

• Passive cooling

• Promotion of electric and natural gas vehicles

• Reduction of air-conditioning electricity consumption

• Reduction of passive-draw power

• Solar water heating

• Substitution of electricity to other sources

• Half of the goal set for each year must 

be obtained by reductions in the 

consumption of electricity and gas by 

end-users

New South Wales, 

Australia, 2003

• Demand-side abatement

• Energy efficiency projects reduce or replace energy consuming 

equipment or processes

• Forest sequestration of carbon

• Fuel switching with reduced GHG emissions

• New energy efficient equipment

• On-site electricity generation with reduced GHG emissions

• Reduction of GHG emissions by non-electricity sector industries [6] 

• Required “benchmark participants” 

(i.e., major electricity producers) must 

meet a percentage of the total 

benchmark greenhouse gas (GHG)

emissions reductions relative to their 

contribution to the grid.

United Kingdom, 

2002

• CHP plants

• Fuel-switching programs

• High efficiency hot water tanks

• Window glazing

• Half of the savings generated for 

compliance must be derived from lowor moderate-income family home
4

4.1 Measurement and Verification (M&V) Protocols

Each ESC trading program develops its own protocols for 

M&V. They often use established templates, such as the 

International Performance Measurement and Verification 

Protocol (IPMVP), as a guide. Focused on commercial and 

industrial applications, the IPMVP covers a broad range of 

measures, including fuel savings, water efficiency, load 

shifting, and equipment upgrades [7]. Others rely on existing 

protocols that already have been developed for public benefits 

funds that support efficiency measures. ESC programs also 

generally require licensed engineering contractors to conduct 

the work or independently verify the savings.

The most accurate methods for determining savings 

involve measuring end-use consumption and then imputing 

savings based on a projection of baseline energy use, or 

conducting whole building measurement. End-use 

measurement can be conducted on a project-specific basis or 

for samples of similar projects. End-use M&V can entail 

different levels of accuracy and expense, depending on what 

parameters are monitored instead of spot-measured, the 

accuracy of the instrumentation, and the duration of the 

monitoring period. 

The use of an automated, web-based tracking system can 

ensure each ESC is identified by a unique serial number that 

need not be identified manually while controlling ESC 

program administrative costs. Such tracking systems 

streamline registration and chain of custody, minimize the risk 

of double-counting, and efficiently generate the necessary 

reports for certifying bodies. The parameters for ESC-tracking 

software already exist and need only be licensed for further 

need-specific development.

4.2 Lifetime Length of ESCs

For the integrity of a trading program, projects should 

generate ESCs only for the period they are actually generating 

the savings, which varies depending on project type and other 

variables. ESCs from a given project can be either reissued 

annually for a fixed number of years, which is the norm, or 

issued the entire lifetime’s worth of ESCs up front. The length 

of the lifetime may be based on a “one-size-fits-all” approach 

to projects, such as a five- or 10-year maximum lifetime. 

Alternatively, lifetimes may be defined for individual 

technology types, reflecting the actual length of time during 

which savings can reasonably be expected for that type, based 

on the history of the project type and other variables.

5. MARKET OPPORTUNITIES

EEPS policies that create long-term targets for energy 

efficiency have emerged in 15 U.S. states (Figure 2) [8]. The 

fact that all but three of these states have done so in the past 

three years demonstrates a clear trend and a renewed state 

interest. Now that a large number of EEPS have been adopted 

in recent years in the United States, there is an increased 

opportunity for ESC trading to emerge.

There are three major markets or potential markets for 

ESCs: compliance, voluntary, and carbon; carbon markets 

also include both voluntary and compliance markets.

FIGURE 2. STATES WITH AN EEPS

Source: American Council for an Energy-Efficient Economy

5.1 Compliance Markets

EEPS policies generally apply to utilities or load-serving 

entities, requiring them to demonstrate a quantity of energy 

savings that usually increases during the life of the 

requirement. In some instances, energy efficiency targets have 

been incorporated into an expanded RPS. In other cases, 

EEPS policies are enacted with targets that are entirely 

separate from and independent of RPS targets; often, this 

occurs in states with an already well-established RPS. [6] 
5

EEPS targets may be expressed as a percentage of demand, 

peak demand, load growth, or retail sales. In some cases, this 

is because of varying policy objectives such as reduction in 

load growth to reduce the need for new power plants, 

reduction in peak demand, promoting economic growth, or a 

combination of factors. They also vary in the types of projects 

that qualify. In some cases, they include a “weighting” 

multiplier feature that effectively increases the incentive to 

implement preferred projects. 

In compliance markets making use of ESCs, the size of the 

market, the number of actors involved, and the role that 

utilities would like to play typically determine whether trading 

is allowed. For example in France the two utilities with the 

largest targets, EDF and Gas de France, tend to implement 

projects by themselves to position the companies as energy 

service providers, while in Italy the majority of ESCs are 

delivered to ESCOs [9].

Where trading is allowed, utilities that exceed the

requirements of an EEPS can sell ESCs to other obligated 

parties that fall short of their requirement. The result, in 

theory, is a less-expensive route to achieve an equivalent 

savings amount. 

Only four states have introduced ESCs into their EEPS 

policy – Connecticut, Nevada, Pennsylvania, and most 

recently Michigan. Only in Connecticut have ESCs been 

actively traded for compliance purposes. North Carolina and 

Illinois have opened dockets or are gathering input on ESC 

trading within an EEPS policy.

5.1.1 Compliance Market Size Potential 

Although only Connecticut, Pennsylvania, Nevada, and 

Michigan currently allow the use of ESCs for compliance, 

progress in addressing some of the technical and institutional 

challenges to implementing ESCs could lead to broader state 

adoption. Until such time, current U.S. market activity is 

limited to Connecticut. 

As an upper-bound benchmark for gauging the potential 

ESC compliance market in the United States, this analysis

estimates ESC market volume under the scenario where all 15 

U.S. states with existing long-term energy efficiency 

obligations allow the use of ESCs for compliance (and 

assumes universal adoption among these 15 states). However, 

additional states may enact long-term energy efficiency

obligations over time, potentially widening the opportunities 

for ESCs as a compliance instrument. Additionally, ESCs 

potentially could be used for compliance in states without any 

form of long-term energy efficiency obligation, but where 

regulators establish shorter-term utility energy efficiency 

program budgets and savings targets. 

Approximating the size of the compliance market at such an 

early stage is somewhat speculative. Table 2 presents the 

ESC market potential among the 15 states currently with longterm energy efficiency obligations, based on the premise that 

ESC trading will gain traction in compliance markets. We 

estimate a potential market volume of more than 35,000 GWh 

in 2010, growing to approximately 86,000 GWh in 2015, and 

125,000 GWh by 2020. To put these figures into context, 

125,000 GWh is more than one-and-a-half times the total U.S. 

electric utility energy efficiency savings in 2006 [10]. Illinois, 

New York, Ohio, Michigan, California, and Maryland 

represent the largest-potential ESC compliance markets 

among the 15 states, comprising about 77% of the total market 

potential in 2020.

5.2 Voluntary Markets

A voluntary market for ESCs has been lauded by energy 

efficiency advocates based on their potential to provide the 

same level of market flexibility and incentives to energy 

efficiency opportunities as RECs have to renewable energy. 

The concept is that parties who have exhausted their own 

opportunities to reduce their energy consumption should have 

a mechanism to reduce their footprint by supporting projects 

regardless of geographic location. Capital investment could 

flow toward the most cost-effective opportunities, competition 

would be increased along with consumer awareness and 

demand, and payback times could be shortened.

A voluntary U.S. market for ESCs has been very slow in 

developing. There are at least three significant reasons why 

the voluntary ESC market has not yet become a significant 

market tool in the United States:

• Difficulty communicating the value proposition;

• Difficulty measuring and verifying energy savings; and

• Absences of an objective third party acting as the 

“certifying body” to address M&V and additionality 

issues.

5.2.1 New York Voluntary ESC Pilot Program 

The New York State Energy Research and Development 

Authority (NYSERDA) is developing a pilot voluntary ESC 

program designed to create environmental benefits by 

increasing the implementation of energy efficiency measures, 

improving the transparency and credibility of ESC markets, 

and addressing potential emissions “leakage” (i.e., shifting 

power generation to outside of the regulated region) that could

undermine the goals of the Regional Greenhouse Gas 

Initiative (RGGI), in which New York is a participating state. 
6

Table 2. Potential ESC Compliance Market in States with Existing Long-Term Energy Efficiency Obligations

State ESC Market Potential (GWh)

2010 2015 2020

Stand-alone EEPS

CA 15,491 18,654 11,021

CT 1,125 1,330 1,400

CO 1,101 1,171 1,233

IL 1,604 11,441 24,449

MD 2,441 7,470 10,298

MI 885 6,372 11,564

MN 684 4,255 7,361

NM 401 936 1,604

NY 6,438 16,255 21,979

OH 1,115 7,523 17,160

TX 3,193 4,463 4,769

Subtotal 33,766 80,507 114,996

Energy Efficiency Included in Broader Portfolio Standard

HI 308 878 1,316

NC 0 2,713 6,902

NV 1,062 2,119 2,525

PA 0 0 0

Subtotal 1,370 5,711 10,742

Total 35,136 86,217 125,738

General methodology:

(1) Several states (CA, NY, MD and MN) have adopted EEPS policies that encompass policy interventions beyond utility or third-party administered energy efficiency incentive 

programs – including, for example, building codes and appliance standards. For these states, the values shown in the table reflect only the portion of those broader targets 

required (or likely) to be met through energy efficiency incentive programs.

(2) States with standalone EEPS policies typically specify their targets in terms of either (a) incremental annual savings as a percentage of retail sales or (b) cumulative 

savings over some time span as a percentage of retail sales in a given year. To translate these targets into an ESC market volume, we assume that energy efficiency 

measures installed to meet the standard would be eligible to receive ESCs for ten years following installation, which is consistent with the ESC eligibility period adopted in 

Connecticut and is in line with typical energy efficiency measure lifetimes. 

(3) States that allow energy efficiency measures to qualify as an eligible resource within a broader portfolio standard typically place a cap on the percentage of the total target 

that can be met with energy efficiency. Except where noted below, we assume that energy efficiency is used for compliance to the maximum extent allowed: 25% of total 

portfolio resources in Nevada, 25% for IOUs in North Carolina, and 50% in Hawaii.

(4) For most states, GWh targets were derived from percentage targets, which required a retail sales forecast. We developed retail sales forecasts by applying the census 

region-based growth rates from EIA’s 2008 Annual Energy Outlook to actual 2006 retail sales in each state. In deriving the GWh targets from retail sales forecasts, we 

account for any exemptions included in each state’s RPS or EEPS policy (e.g., exemptions for publicly owned utilities or for large customers).

Key state-specific assumptions, conventions, and data sources: 

(1) California: The market potential estimate shown for 2010 is based on the 2004-2013 goals adopted for the state’s IOUs. The CPUC recently adopted Total Market Gross 

goals for 2012 -2020, which encompass energy efficiency activities beyond utility programs. The 2015 and 2020 market potential estimates shown in the table reflect only 

the portion of the Total Market Gross goals achievable through utility programs, as determined in the study [11] upon which the goals are based.

(2) Colorado: State law requires that the Colorado PUC establish an EEPS for the state’s two IOUs, and specifies the minimum cumulative savings through 2018. The 

Colorado PUC has established a more-aggressive EEPS for Xcel, but has not yet established an EPPS for the state’s other IOU, Aquila. As such, the market potential 

estimates shown in the table reflect the targets established for Xcel by the Colorado PUC and, for Aquila, the statutory minimum target. 

(3) Connecticut: We assume that ESCs from all C&LM-funded C&I measures will be used to the extent available (accounting for the 10-year credit life), and that any remaining 

EEPS requirement will be met through CHP.

(4) New Mexico: The state’s EEPS specifies targets for cumulative savings through 2014 and through 2020. To estimate the ESC market potential for 2010 and 2015, we 

assume a linear ramp-up to the 2014 and 2020 cumulative savings goals.

(5) New York: The values shown in the table for 2010 and 2015 are taken directly from a NY PSC order that developed annual savings targets for utility and NYSERDAimplemented programs, based on the overall statewide EEPS of 15% reduction by 2015. The 2020 market potential estimate assumes that programmatic efforts continue 

past 2015 at the same level as projected for 2015.

(6) North Carolina: Unlike IOUs, publicly owned utilities (POUs) have no cap on the portion of their RPS target that can be met with energy efficiency. In estimating the ESC 

market potential, we assume that, after all RPS set-asides are met and the large hydro allowance (30%) is fully exhausted, POUs meet 75% of their residual RPS target 

with efficiency. 

(7) Pennsylvania: The state’s Alternative Resource Portfolio Standard has two tiers, one for renewables and another for various “alternative” resources, including energy 

efficiency, large hydroelectric power, clean coal, municipal solid waste, and various other generation resources. Given that sufficient existing large hydroelectric generation 

exists to fully meet Pennsylvania’s Tier 2 standard, we assume that a market for tradable ESCs is unlikely to develop in that state, and thus the market potential shown is 

zero for all years.

(8) The Texas EEPS is specified in terms of minimum peak demand savings as a percentage of peak demand growth, and applies only to the state’s regulated distribution 

utilities. We developed a peak demand forecast for the distribution utilities, based on the statewide peak demand forecast in Eliot et al. (2007). We estimated energy 

savings based on the ratio of energy-to-peak demand savings from energy efficiency programs implemented during 2003-2007 [12].
7

Under the program, NYSERDA is aggregating ESCs from 

qualifying energy efficiency projects, auctioning them to 

brokers or consumers, and using the proceeds to fund 

additional energy efficiency projects. Revenues from the ESC 

sales will supplement funds available under NYSERDA’s 

public benefit fund program for energy efficiency.

NYSERDA plans to use the M&V system already in place 

for its existing energy efficiency program to determine the 

savings and number of ESCs issued for projects. Therefore, 

the ESC program will require very little additional cost with 

respect to M&V. [18]

Two key features of the NYSERDA program could be 

emulated by other states’ systems benefit fund administrators 

who want to use ESCs to make limited funds go further: 

Relying on existing efficiency programs and infrastructure to 

provide a foundation for credible ESCs, and leveraging the 

existing M&V data and protocols to minimize transaction 

costs and to streamline the process of verifying and issuing 

ESCs.

5.3 Carbon Market Interaction

Efficiency has played a substantial role in international 

carbon offset markets, comprising 18% of the global voluntary 

carbon offset transactions in 2007 [13]. Energy savings are 

being traded as voluntary carbon offsets in the Chicago 

Climate Exchange (CCX)—a trading platform through which 

businesses or institutional entities commit to GHG emissions 

reductions and trade with one another to meet their target—

and through a small number of bilateral transactions. 

Currently there are six energy efficiency-based offset projects 

registered on the CCX out of 106 total registered projects.

One key value of ESCs in these markets will be how 

seamlessly they can be integrated, or “converted” into offsets, 

so that the same ESC instrument can participate in voluntary 

ESC or carbon markets. While energy savings clearly offer 

carbon dioxide (CO2) emissions benefits and may be a key 

strategy in achieving GHG mitigation goals, their role in 

carbon markets will be shaped by the design of future policies 

and by standards adopted for voluntary markets. Emerging 

compliance markets could be the largest opportunity for ESCs, 

especially in the event of a federal carbon cap-and-trade 

program.

6. CHALLENGES

Still in an early stage of development, ESC markets can 

play a role in fostering energy efficiency, but not before the 

principles of a well-designed ESC trading platform are 

understood. The challenges associated with ESCs include: 

managing transaction costs; establishing clearly defined and 

understood standards for verifying that savings are real, 

credible, and accurately measured; and accurately tracking 

ESC ownership.

6.1 Transaction Costs

Higher transaction costs associated with ESCs include those 

associated with the complexity of a greater number of parties 

involved in implementation of savings measures; the 

complication and cost of issuing, tracking, and certifying 

ESCs and related activities; and the need to pay special 

attention to M&V standards to ensure market integrity. 

Transaction costs include the direct costs of carrying out an 

ESC transaction, such as the cost of locating, negotiating with, 

and contracting with transaction counterparties. Also, ESC 

energy savings data for the same volume of energy as 

produced by renewable electricity are diffuse and would need 

to come from many more sources [6], resulting in increased 

transaction costs. 

6.2 Monitoring and Validation

Unlike RECs, ESCs cannot rely on readily verified metered 

data to demonstrate measurable results, but depend instead on 

comparatively complex measurement and verification 

protocols, which can vary from one compliance regime to 

another. The emergence of a credible, independent national 

certifying body and consistent set of protocols, as well as the 

success of early examples, most likely will influence whether 

a voluntary market for ESCs will develop as it has for RECs. 

M&V savings resulting from energy efficiency 

improvements is considerably more complicated and can add 

significant costs to ESC transactions. Often M&V is not a 

straightforward exercise because measuring reductions in 

energy consumption depends on a baseline or reference 

scenario, a “before” picture, which is generally a moving 

target that must be accurately projected. Very often, by the 

time energy savings are achieved, “business as usual” (BAU) 

is no longer business as usual, because facility demand or 

energy use patterns have changed. 

ESC markets may be broader than individual utility service 

territories or states, requiring M&V standards to be 

harmonized across jurisdictions. More robust markets for 

ESCs may include a broader range of energy efficiency 

measures that may be implemented in a broader range of 

applications, potentially requiring additional M&V protocols 

to be developed. A larger and more diverse set of entities may 

be involved in implementing projects as well, requiring some 

combination of training and the development of simplified 

M&V options.

6.3 Credibility

Ensuring that savings are “real and additional” is crucial to 

the success of voluntary ESC markets. Measures must be real, 

surplus, verifiable, and permanent. Because many efficiency 

measures are cost-effective over a relatively short period of 

time, determining standards for what measures are additional 

to those that would have occurred under “business as usual” is 

important. The most fundamental balance of interests is the 
8

need to create verification procedures that ensure credibility 

while controlling transaction costs. 

Although ESCs have the potential to bring market-based 

flexibility to energy efficiency, that opportunity remains 

largely untapped. Public and stakeholder understanding of, or 

belief in, ESCs is likely low, which is similar to early 

experiences in the REC market. This is partly fed by a 

somewhat persistent perception that energy efficiency 

measures are unreliable, unpredictable, or unenforceable [6].

6.4 Tracking Ownership

Carefully tracking ESCs’ chain of ownership is necessary to 

ensure against double-counting; yet tracking ownership must 

be accomplished at a reasonable cost, to avoid undercutting 

the small operating margins many efficiency projects carry. 

REC markets have demonstrated the ability of web-based 

systems to accomplish this task at lower costs than via a paper 

contract trail and third-party audit. Web-based electronic 

systems also better address the potential need in future trading 

regimes for tracking systems to integrate ESCs with RECs and 

carbon offsets to avoid confusion, duplication of efforts, and 

the potential for double-counting. 

In Connecticut, rule-makers have attempted to “piggy-back” 

on automated generation attribute tracking systems currently 

used for RECs, using the New England Power Pool 

(NEPOOL) Generation Information System (GIS). Of existing 

United States REC tracking systems, only the North American 

Renewables Registry was designed to track ESCs for a 

contemplated voluntary market. 

7. ESC TRADING IN CONNECTICUT

As the only actively trading ESC market in the U.S., the 

Connecticut program provides an early indication of the 

significance of ESC trading. As of mid-2008, the Connecticut 

C&LM fund was approximately $70 million, while the total 

value of the ESCs auctioned from the fund in 2008 was 

estimated at about $3.3 million. This suggests revenues from 

ESC trading will likely be sufficient to stimulate a reasonable 

investment in new projects.

Connecticut expanded its RPS in 2005 [14] to include an 

energy efficiency portfolio standard, called “Class III,” to 

meet a 1% energy efficiency savings target for 2007, ramping 

up to 2% for 2008, 3% for 2009, and 4% for 2010 and 

thereafter. Obligated suppliers can purchase Class III credits 

to meet their obligations on a quarterly basis; ESCs are issued 

each quarter for each project over the life of the project, with a 

maximum of 10 years.

The targets include a broad array of eligible savings 

projects, including combined heat and power (CHP), as well 

as load management and demand response. In 2007, further 

legislation [15] expanded the eligible savings measures to 

include certain waste heat recovery systems. The Connecticut 

Department of Public Utility Control (DPUC) serves as the 

certifying body, approving projects for Class III credit 

issuance on a quarterly basis. Figure 3 depicts the flow of 

ESCs in the Connecticut compliance trading scheme.

Figure 3. 

The flow of ESCs in 

the Connecticut 

Compliance Trading 

Scheme

Source:

Connecticut DPUC [16]
9

7.1 Context for the Connecticut ESC Program 

Connecticut is one of the U.S. states that has been 

deregulated, or restructured, for retail electricity. Unlike other 

EEPS states that are regulated and have generally only a few 

investor-owned regulated utilities responsible for most EEPS 

compliance, Connecticut has more than 20 competitive 

suppliers responsible for a share of EEPS compliance [17]. 

Conversely, the two major Connecticut distribution utilities—

United Illuminating (UI) and Connecticut Light & Power

(CL&P)—had been administering the energy efficiency 

programs paid for by public benefit funds, with DPUC 

oversight, since 2000 (about five years prior to the enactment 

of the EEPS). Various suppliers have opted to buy ESCs from 

those issued through the Conservation and Load Management

(C&LM) fund administered by UI and CL&P.

7.2 Connecticut Trading Experience

The Connecticut ESC market mechanism is working as 

intended: t independent suppliers are complying with the 

EEPS policy via their most cost-effective option, which is 

buying credits (ESCs), primarily from UI and CL&P, the two 

major investor-owned distribution utilities without Class III 

obligations of their own.

 

The total Connecticut Class III requirement for calendar 

year 2008 is about 627,000 MWh, enough to cover 2% of 

retail sales. The available information on approximate eligible 

quantities of these credits derived from the C&LM for both 

2007 and 2008 is in Table 5.

2007 2008

CL&P Residential Savings 178,500 257,500

CL&P Commercial and 

Industrial Savings

368,000 483,000

UI Total Savings 98,000 110,000

Expected Available from 

CL&P and UI, Combined

644,500 850,500

Expected Total State 

Obligation

300,000 627,000

Table 5. C&LM Class III Credits Available from CL&P 

and UI (MWh) 

7.3 Program Structure and Lessons Learned

Several of the structural elements in the Connecticut trading 

scheme support a reduction in the utilities’ administrative 

burden and transaction costs. For the first 18 months of the 

program, the emphasis was on streamlining the way that ESCs 

were issued and traded for compliance, keeping it simple with 

the idea that the program could be expanded later. As of July 

2008, some of these simple rules were being revisited. 

There are several examples demonstrating this approach 

toward establishing clear, simple rules meant to keep the 

difficulty of compliance, administrative burdens, and 

transaction costs to a minimum. The DPUC was able to work 

with NEPOOL, APX, and other pertinent stakeholders to 

piggyback the tracking of credit ownership through the GIS, 

an automated system that was already in existence for tracking 

RECs in New England. The GIS tracks parties’ transfer of 

credit ownership, establishing a traceable record of the chain 

of ownership for the Class III credits. The paper-free Webbased platform allows these tasks to be accomplished at a low 

cost. 

7.4 Other Notable Provisions

Two of the Connecticut rules are somewhat unusual and 

particularly worth watching. The most important is the 

inclusion of CHP projects. Every MWh generated at a CHP 

plant that came online after January 1, 2006, with an overall 

efficiency level of at least 50% and with useful electrical 

energy that is at least 20% of the total output, qualifies. 

Because the plants will generate large quantities of eligible 

credits, some stakeholders have anticipated that the inclusion 

of CHP will make the targets too easy to attain and result in 

fewer non-CHP efficiency projects.

Connecticut also established a “price protection” floor price 

of $0.01/kWh for the credits, designed to ensure that the risk 

of oversupply does not degrade the value of the credits and 

hurt the long-term health of the market by limiting the openbidding process.

8. SOLUTIONS AND BEST PRACTICES

ESCs can benefit from existing markets and mechanisms to 

reduce costs. They can benefit from the traction RECs have 

gained in the marketplace, along with the existing 

infrastructure developed for REC markets, such as tracking 

systems. These systems could be modified relatively easily to 

accommodate ESC trading. 

Also, ESCs trading programs can benefit from adopting

existing M&V protocols and other data acquired through longstanding efficiency and public benefit programs. Clear, 

consistent M&V protocols are crucial to the long-term success 

of ESC trading schemes. Where ESCs are issued up front for 

the life of a project, M&V determines how much the future 

value of ESCs should be discounted based on risks that the 

shelf life might be altered during the period of expected 

savings, a task that is something of a hybrid between policy 

and engineering considerations.

With only a few ESC markets established, it will be useful 

for policy makers to use guides like the IPMVP and existing 

protocols. Consistency among trading regimes as they form 

will lower barriers to interregional and international ESC 

trading. Also, given the innovative nature of ESCs, it is 

critical to the long-term health of the markets that a credible, 

established organization certifies ESCs.
10

If ESCs are developed with a solid, well-planned foundation 

and the support of authorized, objective third-party certifying 

bodies, they can establish themselves as an accepted consumer 

product and have a beneficial effect on the broader voluntary

demand for energy efficiency. Lastly, the opportunity to use 

ESCs in the compliance context is promising, not only as an 

end in itself but as a means to apply lessons learned, gain 

public and stakeholder acceptance, and pave the way for the 

voluntary market.

9. CONCLUSION

Early experiences with ESCs prove they are worth careful 

consideration, especially in the context of EEPS compliance. 

The results from early pilot programs will be important to 

those considering emulating such programs. For the voluntary 

market, the emergence of a credible, independent national 

certifying body and consistent set of protocols is paramount. 

Similarly, the success of early examples of the use of ESCs for 

EEPS compliance, such as the program in Connecticut, will be 

watched closely by stakeholders.

Not entirely different from the early experience of REC 

markets, the development of robust markets for ESCs will 

depend on consistency and clarity in standards and protocols 

as well as the ability of the industry to speak with a central 

voice. Ensuring that savings are real, verifiable, and additional 

is necessary for the market to gain credibility. Proper handling 

of monitoring and verification is particularly important to 

preserve market integrity, especially on the voluntary side of 

the market, which depends so heavily on public perception. 

Keeping administrative, certification, and tracking costs low 

will enable market traction, given the relatively low profit 

margins to be expected with the product. Large programs that 

involve more parties also can help diffuse these costs and help 

ensure adequate M&V oversight.

As the general public and policy makers continue to warm 

to the idea of requirements that build in market-based 

flexibility, such as REC and carbon offset trading, the 

potential exists for ESCs to play a role in expanding markets 

for energy efficiency.

ACKNOWLEDGMENTS

This work was funded by the U.S. Department of Energy 

(DOE) Office of Energy Efficiency and Renewable Energy 

(EERE). The authors wish to thank Linda Silverman, John 

Atcheson, and the renewable energy technology programs of 

DOE for their support of this work. We also wish to thank the 

following individuals for their support of this work: Edward 

Vine and Jan Hamrin of LBNL, Connecticut Clean Energy 

Fund: David Goldberg; United Illuminated: Alfred Mascola, 

Pat McDonnell; Connecticut Power & Light: Steve Bruno; 

Sterling Planet: Kelly Bennett. American Council for an 

Energy Efficient Economy: Steve Nadel, Laura Furrey. 

InterEnergy Solutions: Matthew Brown. 

And finally, we offer many thanks to Michelle Kubik for 

her editorial assistance. 

REFERENCES

1. Bertoldi, P. and T. Huld. (2006) “Tradable 

certificates for renewable energy and energy 

savings.” Energy Policy. 34: pp. 212-222.

2. American Council for an Energy-Efficient Economy 

(ACEEE). (2008). Role of Energy Efficiency in 

Climate Policy. Washington, D.C. American Council 

for an Energy-Efficient Economy, www.aceee.org, 

May 2008.

3. Bertoldi, P.; S. Rezessy; and D. Urge-Vorsatz. 

(2005a). “Tradable Certificates for Energy Savings: 

Opportunities, Challenges, and Prospects for 

Integration with Other Market Instruments in the 

Energy Sector,” Energy and Environment, 16(6): 

959-992. 

4. Bertoldi, P.; Langniss, O.; Rezessy, S.; Voogt, M. 

(2005b). “White, Green & Brown Certificates: How 

To Make The Most Of Them?” ECEEE 2005 

Summer Study - What Works & Who Delivers?

5. Loper, J.; J. Harris; L. Ungar; S. Capanna; S. 

Devranolglu. (2008). “Deal or No Deal? Pros and 

Cons of Trading Under an Energy Efficiency 

Resource Standard.” Alliance to Save Energy, 

Washington, D.C. 

6. Hamrin, J.; E. Vine.; and A. Sharick. (2007). “The 

Potential for Energy Savings Certificates as a Major 

Tool in Greenhouse Gas Reduction Programs.” 

Prepared by the Center for Resource Solutions for the 

Henry P. Kendall Foundation, May. 

http://www.resource-solutions.org/lib/librarypdfs/ 

Draft_Report_ESC_V12_cleanFINAL_5-24-07.pdf.

7. International Performance Measurement & 

Verification Protocol. Concepts and Options for 

Determining Energy and Water Savings, Volume 1. 

DOE/GO-102002-1554. March 2002. 

www.ipmvp.org.

8. Database of State Incentives for Renewable Energy 

and Energy Efficiency. DSIRE: Rules, Regulations, 

& Policies for Energy Efficiency: 

http://www.dsireusa.org/summarytables/regee.cfm?&

CurrentPageID=7&EE=1&RE=1 Accessed July ‘08.
11

9. Bertoldi, P. (October 14, 2008). Personal 

communication. European Commission, Italy.

10. Energy Information Agency (EIA). “Demand-Side 

Management Program Energy Savings.” Form EIA861, Electric Power Annual. Table 9.6 Demand-Side 

Management Program Energy Savings, 1995 through 

2006. http://www.eia.doe.gov/cneaf/electricity/epa/ 

epat9p6.html

11. Itron, Inc. (2008). “Assistance in Updating the 

Energy Efficiency Savings Goals for 2012 and 

Beyond.” Consultant report to the California Public 

Utilities Commission. 

http://www.cpuc.ca.gov/PUC/energy/electric/Energy

+Efficiency

12. Frontier Associates, LLC. (2008). Energy Efficiency 

Accomplishments of Texas Investor Owned Utilities, 

Calendar Year 2007. 

http://www.texasefficiency.com/report.html. 

13. Hamilton, K.; Sjardin, M.; Marcello, T.; Xu, G. 

(2008). “State of the Voluntary Carbon Markets 

2008.” Ecosystem Marketplace and New Carbon 

Finance. URL: 

http://ecosystemmarketplace.com/documents/cms_do

cuments/2008_StateofVoluntaryCarbonMarket.4.pdf

14. State of Connecticut Public Act 05-01. “AN ACT

CONCERNING ENERGY INDEPENDENCE.” 

http://www.cga.ct.gov/2005/ACT/PA/2005PA-00001-

R00HB-07501SS1-PA.htm

15. State of Connecticut Public Act 07-242. “AN ACT 

CONCERNING ELECTRICITY AND ENERGY 

EFFICIENCY.” 

http://www.cga.ct.gov/2007/ACT/PA/2007PA-00242-

R00HB-07432-PA.htm

16. State of Connecticut Department of Public Utility 

Control (DPUC). Docket No. 05-07-19, DPUC 

Proceeding to Develop A New Distributed Resources 

Portfolio Standard (Class III), February 16, 2006. 

http://www.ct.gov/dpuc/cwp/view.asp?a=3354&q=41

5186

17. WattsNewCT. “Suppliers and Aggregators.” Electric 

Restructuring. 

http://www.wattsnewct.com/newsuppliers.html. 

Accessed August 21, 2008.

18. Personal communication with Brenden Millstein, 

NYSERDA Peak Load Assistant Project Manager.

bsm@nyserda.org.
F1147-E(10/2008)

REPORT DOCUMENTATION PAGE Form Approved

OMB No. 0704-0188

The public reporting burden for this collection of information is estimated to average 1 hour per response, including the time for reviewing instructions, searching existing data sources, 

gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this 

collection of information, including suggestions for reducing the burden, to Department of Defense, Executive Services and Communications Directorate (0704-0188). Respondents 

should be aware that notwithstanding any other provision of law, no person shall be subject to any penalty for failing to comply with a collection of information if it does not display a 

currently valid OMB control number.

PLEASE DO NOT RETURN YOUR FORM TO THE ABOVE ORGANIZATION.

1. REPORT DATE (DD-MM-YYYY)

July 2009

2. REPORT TYPE

Conference Paper

3. DATES COVERED (From - To)

4. TITLE AND SUBTITLE

Energy Savings Certificate Markets: Opportunities and 

Implementation Barriers

5a. CONTRACT NUMBER

DE-AC36-08-GO28308

5b. GRANT NUMBER

5c. PROGRAM ELEMENT NUMBER

6. AUTHOR(S)

B. Friedman, L. Bird, and G. Barbose

5d. PROJECT NUMBER

NREL/CP-6A2-45970

5e. TASK NUMBER

SAO7.8730

5f. WORK UNIT NUMBER

7. PERFORMING ORGANIZATION NAME(S) AND ADDRESS(ES)

National Renewable Energy Laboratory

1617 Cole Blvd.

Golden, CO 80401-3393

8. PERFORMING ORGANIZATION

REPORT NUMBER

NREL/CP-6A2-45970

9. SPONSORING/MONITORING AGENCY NAME(S) AND ADDRESS(ES) 10. SPONSOR/MONITOR'S ACRONYM(S)

NREL

11. SPONSORING/MONITORING

AGENCY REPORT NUMBER

12. DISTRIBUTION AVAILABILITY STATEMENT

National Technical Information Service

U.S. Department of Commerce

5285 Port Royal Road

Springfield, VA 22161

13. SUPPLEMENTARY NOTES

14. ABSTRACT (Maximum 200 Words)

Early experiences with energy savings certificates (ESCs) have revealed their merits and the challenges associated 

with them. While in the United States ESC markets have yet to gain significant traction, lessons can be drawn from 

early experiences in the states of Connecticut and New York, as well as from established markets in Italy, France, 

and elsewhere. The staying power of European examples demonstrates that ESCs can help initiate more efficiency 

projects. This article compares ESCs with renewable energy certificates (RECs), looks at the unique opportunities 

and challenges they present, and reviews solutions and best practices demonstrated by early ESC markets. Three 

major potential ESC market types are also reviewed: compliance, voluntary, and carbon. Additionally, factors that 

will benefit ESC markets in the United States are examined: new state EEPS policies, public interest in tools to 

mitigate climate change, and the growing interest in a voluntary market for ESCs.

15. SUBJECT TERMS

energy efficiency; energy savings certificates; white certificates; white tags; efficiency market; carbon; renewable 

energy certificates

16. SECURITY CLASSIFICATION OF: 17. LIMITATION 

OF ABSTRACT

UL

18. NUMBER 

OF PAGES

19a. NAME OF RESPONSIBLE PERSON

a. REPORT

Unclassified

b. ABSTRACT

Unclassified

c. THIS PAGE

Unclassified 19b. TELEPHONE NUMBER (Include area code)

Standard Form 298 (Rev. 8/98)

Prescribed by ANSI Std. Z39.18