A RESOURCE OF THE NATIONAL ACTION PLAN 

FOR ENERGY EFFICIENCY

SEPTEMBER 2009

Energy Effi ciency as a Low-Cost 

Resource for Achieving Carbon 

Emissions Reductions
About This Document

This paper, Energy Effi ciency as a Low-Cost Resource for Achieving 

Carbon Emissions Reductions, is provided to assist utility regulators, gas 

and electric utilities, and others in meeting the National Action Plan for 

Energy Effi ciency’s goal of achieving all cost-effective energy effi ciency 

by 2025. 

This paper summarizes the scale and economic value of energy effi -

ciency for reducing carbon emissions and discusses the barriers to 

achieving the potential for cost-effective energy effi ciency. It also 

reviews current regional, state, and local approaches for including 

energy effi ciency in climate policy, using these approaches to inform 

a set of recommendations for leveraging energy effi ciency within 

state climate policy. The paper does not capture federal climate policy 

options or recommendations, discussion of tradable energy effi ciency 

credits, or emissions impacts of specifi c energy effi ciency measures or 

programs. 

The intended audience for the paper is any stakeholder interested in 

learning more about how to advance energy effi ciency as a low-cost 

resource to reduce carbon emissions. All stakeholders, including state 

policy-makers, public utility commissions, city councils, and utilities, can 

use this paper to understand the key issues and terminology, as well 

as the approaches that are being used to reduce carbon emissions by 

advancing energy effi ciency policies and programs.
Energy Efficiency as a Low-Cost 

Resource for Achieving Carbon 

Emissions Reductions 

A RESOURCE OF THE NATIONAL ACTION PLAN FOR 

ENERGY EFFICIENCY 

SEPTEMBER 2009 
The Leadership Group of the National Action Plan for Energy Efficiency is committed to taking 

action to increase investment in cost-effective energy efficiency. Energy Efficiency as a LowCost Resource for Achieving Carbon Emissions Reductions was developed under the guidance 

of and with input from the Leadership Group. The document does not necessarily represent a 

consensus view and does not represent an endorsement by the organizations of Leadership 

Group members. 

Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions is a 

product of the National Action Plan for Energy Efficiency and does not reflect the views, policies, 

or otherwise of the federal government. The role of the U.S. Department of Energy and U.S. 

Environmental Protection Agency is limited to facilitation of the Action Plan. 

If this document is referenced, it should be cited as: 

National Action Plan for Energy Efficiency (2009). Energy Efficiency as a Low-Cost Resource 

for Achieving Carbon Emissions Reductions. Prepared by William Prindle, ICF International, Inc. 

<www.epa.gov/eeactionplan> 

For More Information 

Regarding Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions, please contact: 

Joe Bryson 

U.S. Environmental Protection Agency 

Office of Air and Radiation 

Climate Protection Partnerships Division 

Tel: (202) 343-9631 

E-mail: bryson.joe@epa.gov

Regarding the National Action Plan for Energy Efficiency, please contact: 

Stacy Angel 

U.S. Environmental Protection Agency 

Office of Air and Radiation 

Climate Protection Partnerships Division 

Tel: (202) 343-9606 

E-mail: angel.stacy@epa.gov

Larry Mansueti 

U.S. Department of Energy 

Office of Electricity Delivery and Energy Reliability 

Tel: (202) 586-2588 

E-mail: lawrence.mansueti@hq.doe.gov 

or visit www.epa.gov/eeactionplan
National Action Plan for Energy Efficiency i

Table of Contents 

List of Figures ...............................................................................................................................iii 

List of Tables.................................................................................................................................iii 

List of Abbreviations and Acronyms............................................................................................. iv 

Acknowledgements....................................................................................................................... v 

Executive Summary ................................................................................................ ES-1 

Findings and Recommendations.........................................................................................ES-4 

Achieving All Cost-effective Energy Efficiency—Vision for 2025 ........................................ES-5 

1: Introduction ........................................................................................................ 1-1

1.1 Objectives of the Paper...............................................................................................1-1

1.2 Structure of the Paper .................................................................................................1-4

1.3 Development of the Paper...........................................................................................1-4

1.4 Notes...........................................................................................................................1-4

2: The Size, Economic Value, and Emissions Impacts of Energy Efficiency 

Resources........................................................................................................... 2-1

2.1 Potential Studies for Energy Efficiency .......................................................................2-1

2.2 Efficiency Potential in Utility Resource Planning Studies............................................2-5

2.3 Energy Efficiency Resources in Current Program Portfolios.......................................2-8

2.4 Energy Efficiency’s Potential Impact on CO2 Emissions ...........................................2-11

2.5 Summary of Findings ................................................................................................2-15

2.6 Notes.........................................................................................................................2-16

3: Costs and Benefits of Current Energy Efficiency Investments...................... 3-1

3.1 Cost of Saved Energy .................................................................................................3-1

3.2 Total Costs and Savings of Investment in Energy Efficiency Technologies and 

Programs.....................................................................................................................3-2

3.3 Macro-Economic Benefits of Efficiency Resource Investments ..................................3-3

3.4 Investment Necessary to Achieve Economic Potential ...............................................3-3

3.5 Summary of Findings ..................................................................................................3-4

3.6 Notes...........................................................................................................................3-4

4: Limitations to Advancing Energy Efficiency Through Energy Pricing 

Policies................................................................................................................ 4-1

4.1 Market Barriers to Energy Efficiency...........................................................................4-1

4.2 Regulatory Barriers .....................................................................................................4-3
ii Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

4.3 Price Elasticity.............................................................................................................4-3

4.4 Summary of Findings ..................................................................................................4-5

4.5 Notes...........................................................................................................................4-5

5: Summary of Energy Efficiency Policies and Programs.................................. 5-1

5.1 Addressing Market Barriers.........................................................................................5-1

5.2 Addressing Regulatory Barriers ..................................................................................5-7

5.3 Action Plan Vision for 2025 and Related Resources...................................................5-7

5.4 Summary of Findings ................................................................................................5-12

5.5 Notes.........................................................................................................................5-12

6: How Climate Policies and Programs Leverage Energy Efficiency ................ 6-1

6.1 Energy Efficiency Within Climate Policy Mechanisms.................................................6-1

6.2 Energy Efficiency as a Complementary Policy............................................................6-7

6.3 Summary of Findings ..................................................................................................6-7

7: Findings and Recommendations...................................................................... 7-1

 Appendix A: National Action Plan for Energy Efficiency Leadership Group...... A-1

 Appendix B: Glossary.............................................................................................. B-1

 Appendix C: References.......................................................................................... C-1
National Action Plan for Energy Efficiency iii

List of Figures 

Figure 2-1. Summary of Utility Energy Load Growth Forecasts Through 2013 With and 

Without Energy Efficiency Programs.....................................................................2-8

Figure 2-2. California Utilities’ Energy Efficiency Program Impacts, 2006–2008.....................2-10

Figure 2-3. Northwest Power and Conservation Council Efficiency Estimates........................2-10

Figure 2-4. Efficiency Vermont 2007 Impacts ..........................................................................2-11

Figure 2-5. McKinsey Carbon Abatement Cost Curve.............................................................2-13

Figure 2-6. IPCC CO2 Emissions Abatement Estimates..........................................................2-14

Figure 2-7. CO2 Reductions From Energy Efficiency and Renewable Energy ........................2-14

Figure 6-1. Leveraging Energy Efficiency in State Climate Policies ..........................................6-2

List of Tables 

Table ES-1. Overview of Existing Work on the Energy Efficiency Resource..........................ES-2 

Table ES-2. Overview of Costs and Benefits of Energy Efficiency Programs ........................ES-3 

Table ES-3. Policy/Program Options Matched to Markets......................................................ES-3 

Table ES-4. Leveraging Energy Efficiency in State Climate Policies......................................ES-4 

Table 1-1. National Action Plan for Energy Efficiency Tools by Implementation Goals.............1-2

Table 2-1. Selected U.S. Energy Efficiency Potential Studies ...................................................2-2

Table 2-2. Summary of Utilities' Progress Toward the WGA Clean and Diversified 

Energy Committee Goal of 20 Percent Reduction in Energy Consumption 

by 2020 .................................................................................................................2-7

Table 5-1. Policy/Program Options Matched to Markets ...........................................................5-2

Table 5-2. State Progress in Meeting the National Action Plan for Energy Efficiency 

Vision ....................................................................................................................5-8

Table 5-3. National Action Plan for Energy Efficiency Tools by Implementation Goals...........5-11

Table 6-1. California Air Resources Board AB 32 Compliance Plan Summary .........................6-4

Table 6-2. States With Common Energy Efficiency Policies in Place as of October 2008 ........6-7
iv Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

List of Abbreviations and Acronyms 

AB 32 Assembly Bill 32 

ACEEE American Council for an Energy-Efficient Economy 

ARRA American Recovery and Reinvestment Act 

ASES American Solar Energy Society 

Btu British thermal unit 

CARB California Air Resources Board 

CEE Consortium for Energy Efficiency 

CEF (Scenarios for a) Clean Energy Future 

CIP Conservation Improvement Program 

CO2 carbon dioxide 

CPUC California Public Utilities Commission 

DOE U.S. Department of Energy 

EERS energy efficiency resource standard 

EIA U.S. Energy Information Administration 

EPA U.S. Environmental Protection Agency 

EPRI Electric Power Research Institute 

GHG greenhouse gas 

GWh gigawatt-hour 

IEA International Energy Agency 

IPCC Intergovernmental Panel on Climate Change 

kW kilowatt 

kWh kilowatt-hour 

MGA Midwestern Governors Association 

MPO Metropolitan Planning Organization 

NWPCC Northwest Power and Conservation Council 

NYSERDA New York State Energy Research and Development Authority 

OECD Organisation for Economic Co-operation and Development 

PGE Portland General Electric 

PG&E Pacific Gas and Electric Company 

PSCo Public Service of Colorado 

PSE Puget Sound Energy 

RGGI Regional Greenhouse Gas Initiative 

SCE Southern California Edison 

SDG&E San Diego Gas and Electric Company 

WCI Western Climate Initiative 

WGA Western Governors’ Association 
National Action Plan for Energy Efficiency v

Acknowledgements 

This paper, Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions 

Reductions, is a key product of the National Action Plan for Energy Efficiency. In addition to 

review and comment by the Action Plan Leadership Group (see Appendix A), this paper was 

prepared with the valuable input of an advisory group. Advisory group members include: 

Lynn Anderson, Idaho Public Utilities Commission 

Jasmin Ansar, Pacific Gas & Electric 

Sheryl Carter, Natural Resources Defense Council 

Daniel Francis, American Electric Power 

Clay Nesler, Johnson Controls 

Jolyn Newton, Tennessee Valley Authority 

Paul Sotkiewicz, PJM Interconnection 

Dick Stevie, Duke Energy 

Rick Tempchin, Edison Electric Institute 

Bill Prindle of ICF International served as the primary author of the paper, under contract to the 

U.S. Environmental Protection Agency (EPA). Rich Sedano of the Regulatory Assistance 

Project provided his expertise during review and editing of this paper. 

The U.S. Department of Energy (DOE) and EPA facilitate the National Action Plan for Energy 

Efficiency. Key staff include Larry Mansuetti (DOE Office of Electricity Delivery and Energy 

Reliability); Dan Beckley (DOE Office of Energy Efficiency and Renewable Energy); and 

Kathleen Hogan, Joe Bryson, Katrina Pielli, and Stacy Angel (EPA Climate Protection 

Partnerships Division). 

Eastern Research Group, Inc. provided copyediting, graphics, and production services. 

National Action Plan for Energy Efficiency ES-1

Executive Summary 

This paper examines the role of energy efficiency in addressing global climate change. It 

summarizes research on the size, economic value, and carbon dioxide (CO2) emissions 

reduction impacts of efficiency resources, reviews available information on the benefits 

and costs of energy efficiency, discusses the factors that limit efficiency investment in 

today’s markets, and outlines energy efficiency policy and programs in use today that 

can be further expanded, including climate policy applications. The paper concludes that 

efficiency’s potential contribution to reducing CO2 emissions and reducing the cost of 

climate policies is large, requires action, and should be part of climate policy designs at 

all levels of government. This paper is provided to assist organizations in meeting the 

National Action Plan for Energy Efficiency’s goal to achieve all cost-effective energy 

efficiency by 2025. 

Investment in energy efficiency combats global climate change in two primary ways. First: 

simply put, “the less energy used, the fewer emissions produced.” Second, cost-effective energy 

efficiency achieves these environmental benefits at low cost, and thus can reduce the economic 

costs of achieving climate policy goals. 

To improve the understanding of the role of energy efficiency in addressing global climate 

change and many of the policy steps necessary to employ energy efficiency toward this end, 

this paper summarizes: 

Existing work on the magnitude, benefits, and costs of the energy efficiency 

resource in the United States. This paper examines more than a dozen potential 

studies, resource planning documents, and energy efficiency program evaluations (see 

Table ES-1). A particular emphasis is placed on studies that evaluate the potential for 

energy efficiency to cost-effectively reduce CO2 emissions. From these and additional 

studies, the costs and benefits of energy efficiency programs currently underway are 

also summarized (see Table ES-2). 

Key barriers that limit investment in energy efficiency to a fraction of its costeffective potential. This paper explores the rationale for energy efficiency policy and 

program interventions by discussing the nature and extent of market and regulatory 

barriers that keep energy end-use markets from adopting cost-effective energy 

efficiency. These include the principal-agent barrier that shows up in new buildings and 

rental property markets and the transaction-cost barrier that affects many smaller 

customers and transactions. Regulatory barriers include the fragmented nature of 

planning and resource decision-making in energy markets, as well as ratemaking 

practices that create disincentives for utilities to invest in customer energy efficiency. 

The paper also discusses the limitations of energy prices as a driver for energy 

efficiency investment due to price inelasticity, which largely results from these market 

and regulatory barriers. 

Energy efficiency policies and programs. This paper summarizes the policies and 

programs that federal, state, and local governments are using to require or encourage 

efficiency investment. (Table ES-3 provides a snapshot of these options.) It also lists 

Action Plan tools and resources that can support agencies and program administrators 

in developing and implementing these policy and program options. 
ES-2 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

Climate policy approaches that leverage energy efficiency. This paper summarizes 

state and regional climate policies in operation or development which help drive 

investment in energy efficiency. These policies target energy efficiency through a variety 

of means, including allowance auction and allocation and complementary energy 

policies such as resource standards, administered energy efficiency programs, building 

codes, and appliance standards (see Table ES-4). 

Table ES-1. Overview of Existing Work on the Energy Efficiency Resource 

Type of Study 

Number of 

Studies 

Examined 

General Summary 

Potential studies: 

Estimates of the overall costeffective resource capabilities 

Nine studies, 

including 

national, regional, 

and state-level 

assessments 

Energy savings potentials range 

from 8.5% to 26.3% of forecast 

consumption across a variety of 

study horizons and other factors 

Energy resource plans: 

Assessments of the resource 

contribution from energy 

efficiency for a specific 

geographic area or energy 

system 

Three studies at 

utility or regional 

level 

Findings are consistent with the 

range of savings potentials 

contained in the nine potential 

studies 

Program portfolio evaluations 

and program filings: 

Detailed plans on the energy that 

can be saved through energy 

efficiency and the cost of the 

saved energy 

Four portfolios: 

three state and 

one regional 

Several states are realizing energy 

savings on an annualized basis 

within the range of estimates 

projected in potential assessments 

and resource plans 

CO2 reduction potential 

studies: 

Assessments of the impacts that 

energy efficiency could have on 

reducing U.S. CO2 emissions 

Six major studies 

at national level 

The studies’ estimates range from 

less than 300 million metric tons to 

over 1 billion metric tons in 2030, 

placing the Action Plan goal toward 

the center of the range of estimates 
National Action Plan for Energy Efficiency ES-3

Table ES-2. Overview of Costs and Benefits of Energy Efficiency Programs 

Cost/Benefit Measure 

Number of 

Studies 

Examined 

General Summary 

Cost of saved energy 

(annualized) 

Six 1.2–5.2 cents per saved kWh 

Total program costs and 

savingsa

Two About $2 billion annually, equivalent to 

about 0.5% of utility revenues as of 2006; 

savings of about 63 billion kWh (about 2% 

of retail sales) and 135 million therms 

(about 0.1% of retail sales) as of 2006 

Macroeconomic benefits 

(increases in gross economic 

output, jobs, and additional 

personal income) 

Three Economic benefits in the range of $250 

billion through 2030 

Source: Values derived from ACEEE (Eldridge et al., 2008) and CEE (Nevius et al., 2008), as estimated 

for the Action Plan’s Vision for 2025 (National Action Plan for Energy Efficiency, 2008). 

a

 Note that these savings and costs apply only to administered programs. They do not include savings 

and costs related to other efficiency policies such as building codes and appliance standards, and also 

do not capture private efficiency investment from non-participants in administered programs. The 

energy savings are cumulative, representing savings from multiple years, while the costs are annual. 

Table ES-3. Policy/Program Options Matched to Markets 

Market Focus 

Policy/Program Option Individual 

Products 

New 

Construction 

Existing 

Buildings/ 

Facilities 

Mandatory appliance standards X 

Product labeling X 

Voluntary appliance standards X 

Minimum building codes X 

Voluntary building standards X 

Building labeling/benchmarking X X 

Retrofit programs X 

Education and outreach X X X 

Government lead-by-example X X X 

Administered energy efficiency 

programs 

X X X 
ES-4 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

Table ES-4. Leveraging Energy Efficiency in State Climate Policies 

State Climate Policy Leveraging Energy Efficiency 

Number of States 

with Policy in 

Place 

GHG allowance revenue from GHG cap and trade used to 

expand funding of energy efficiency programs 10 

State climate change action plans that highlight the potential role 

for energy efficiency policy and programs 32 

Sources: <http://epa.gov/climatechange/wycd/stateandlocalgov/state_planning.html> and 

<http://www.raponline.org/Slides/DF-RGGI_for_VLS_Parenteau_Class-10Apr09.pdf>. 

Note: These totals were current as of August 2008. 

Findings and Recommendations 

This paper presents the following key findings: 

Energy efficiency is a large and low-cost energy resource that can save on the order of 

20 percent of end-use energy consumption and costs substantially less than new supply 

resources. 

Efficiency is also a large and low-cost carbon abatement resource. If tapped in 

substantial quantities, efficiency can help achieve CO2 emissions reduction goals and 

lower the costs of doing so—whether or not specific climate policies are in effect. 

Due to market and regulatory barriers and the limits of price elasticity, energy prices 

alone are not likely to accelerate efficiency investment at the rate needed to realize 

efficiency’s economic potential. 

Targeted energy efficiency policies and programs are needed to reduce market and 

regulatory barriers and thereby increase energy efficiency investment. Proven policy and 

program options are available to address a range of barriers. 

On a national basis, harvesting cost-effective efficiency resources could justify severalfold increases in current efficiency program budgets. Investment in efficiency is at a 

fraction of the level necessary to realize a high percentage of efficiency potential. 

Many states and local governments have made energy efficiency central to their 

greenhouse gas reduction strategies through targeted policies and programs. The Action 

Plan’s Vision for 2025 and supporting tools and resources offer important policy 

frameworks and assistance for capturing the low-cost energy efficiency resources. 

Based on these findings, key recommendations are as follows: 

Energy efficiency should be a cornerstone of energy and/or climate policies at all levels 

of government, based on its proven status as a cost-effective option for reducing CO2

emissions and reducing the cost of climate policies. 
National Action Plan for Energy Efficiency ES-5

Energy efficiency policies and programs should be pursued expeditiously, with an 

emphasis on establishing the necessary policy foundation for capturing all cost-effective 

energy efficiency as outlined in the Vision for 2025. 

Achieving All Cost-effective Energy Efficiency—Vision for 2025 

This paper has been developed to help parties pursue the key policy recommendations of the 

National Action Plan for Energy Efficiency and its Vision for 2025 implementation goals. As part 

of its Vision, the Action Plan Leadership Group identified integrating energy efficiency 

considerations into policies to limit emissions of greenhouse gases as one of the six key related 

state, regional, and national policies that can help achieve all cost-effective energy efficiency by 

2025 (National Action Plan for Energy Efficiency, 2008a, Chapter 4). For information on the full 

suite of policy and programmatic options to remove barriers to energy efficiency, see the Vision 

for 2025 and the various other Action Plan papers and guides available at 

www.epa.gov/eeactionplan. 

National Action Plan for Energy Efficiency 1-1

1: Introduction 

Global climate change challenges us to transform the ways in which we generate and use 

energy. Based on the findings of the world’s climate scientists and mitigation experts, 

substantial emissions reductions are necessary to avoid significant changes in the earth’s 

atmosphere with severe consequences for human health and the global environment. The most 

recent consensus findings of the Intergovernmental Panel on Climate Change (IPCC) state that 

greenhouse gas (GHG) emissions need to be reduced by 50 to 85 percent by 2050 to avoid 

global temperature rise of 2.5 degrees Celsius or more, and global GHG emissions must stop 

rising no later than 2015 (IPCC, 2007). With the majority of government leaders taking steps to 

act on these findings, there are intensified efforts in many nations to develop low-cost emissions 

reduction options in the near term. This puts energy efficiency in the climate policy spotlight as a 

near-term, low-cost resource for reducing the growth in carbon emissions and lowering the 

ultimate cost of reducing GHG emissions. 

Energy efficiency provides multiple public benefits regardless of its carbon emissions impacts. It 

reduces home and business energy costs, improves productivity, stimulates economic growth, 

reduces energy market prices, improves energy system reliability, reduces criteria air pollutant 

emissions, and enhances national energy security. Savings from reduced energy consumption 

typically outweigh the cost of the energy efficiency investment. Thus, efficiency reduces the 

overall cost of energy services. Energy consumption per dollar of U.S. economic output has 

fallen by half since the 1970s, fueling sustained economic growth and softening the economic 

damage from recent energy price surges. Efficiency has become a quiet engine of prosperity for 

the United States and other economies, and is at the forefront of a new wave of clean energy 

investment that can support continued prosperity along with energy security and environmental 

protection (Ehrhardt-Martinez and Laitner, 2008; EPA, 2006; and National Action Plan for 

Energy Efficiency, 2008a). 

Increased energy efficiency investment combats global climate change in two primary ways. 

First, simply put, “the less energy used, the fewer emissions produced.” While this general 

statement overlooks the more complex relationships between energy efficiency and carbon 

dioxide (CO2) emissions, it places energy efficiency in a core role for future energy and climate 

policies and programs. Second, cost-effective energy efficiency achieves these environmental 

benefits at low cost, and thus can reduce the economic costs of achieving climate policy goals. 

1.1 Objectives of the Paper 

This paper has been developed to help parties pursue the key policy recommendations of the 

Action Plan and its Vision for 2025 implementation goals. As part of its Vision, the Action Plan’s 

Leadership Group identified integrating energy efficiency considerations into policies to limit 

emissions of GHGs as one of the six key related state, regional, and national policies to 

achieving all cost-effective energy efficiency by 2025. While energy efficiency’s potential to 

achieve low-cost reductions in CO2 emissions has been mentioned in earlier Action Plan 

materials, CO2 impacts have been addressed only in a general way as one of many societal 

benefits. Accordingly, the Leadership Group made it a priority to develop this issue paper, 

presenting more explicit information that will help states, utilities, and other stakeholders 

address climate change through a variety of policy and program mechanisms. This paper is part 

of the comprehensive suite of papers, resources, and tools available to all parties taking action 

to advance all cost-effective energy efficiency by 2025 (see Table 1-1). 
1-2 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

Table 1-1. National Action Plan for Energy Efficiency Tools by Implementation 

Goals 

Goal Detailed Action Plan Tools and Resources 

Goal One: Establishing Cost-Effective 

Energy Efficiency as a High-Priority 

Resource 

 Guide to Resource Planning With Efficiency 

 Guide for Conducting Potential Studies 

 Communications Kit 

Goal Two: Developing Processes to Align 

Utility and Other Program Administrator 

Incentives Such That Efficiency and Supply 

Resources Are on a Level Playing Field 

 Aligning Utility Incentives With Investment in 

Energy Efficiency Paper 

Goal Three: Establishing CostEffectiveness Tests  Understanding Cost-Effectiveness of Energy 

Efficiency Programs Paper 

 Guide to Resource Planning With Efficiency 

 Guide for Conducting Potential Studies 

Goal Four: Establishing Evaluation, 

Measurement, and Verification Mechanisms

 Model Energy Efficiency Program Impact 

Evaluation Guide 

Goal Five: Establishing Effective Energy 

Efficiency Delivery Mechanisms 

 Rapid Deployment Energy Efficiency Toolkit 

 Consumer Perspectives on Delivery of Energy 

Efficiency Brief 

 Customer Incentives Through Programs Brief 

(Under Development) 

Goal Six: Developing State Policies to 

Ensure Robust Energy Efficiency Practices 

 Building Codes for Energy Efficiency Fact 

Sheet 

 Efficiency Program Interactions With Codes 

Paper 

 State and Local Lead-by-Example Guide 

Goal Seven: Aligning Customer Pricing and 

Incentives to Encourage Investment in 

Energy Efficiency 

 Customer Incentives Through Rate Design 

Brief 

Goal Eight: Establishing State of the Art 

Billing Systems 

 Utility Best Practices Guidance for Providing 

Business Customers With Energy Data 

Goal Nine: Implementing State of the Art 

Efficiency Information Sharing and Delivery 

Systems 

 Paper on Coordination of Demand Response 

and Energy Efficiency (Under Development) 

Goal Ten: Implementing Advanced 

Technologies 

 Most Energy-Efficient Economy Project (in 

Process) 

Related State, Regional, and National 

Policies

 Energy Efficiency as a Low-Cost Resource for 

Achieving Carbon Emissions Reductions 

Paper 
National Action Plan for Energy Efficiency 1-3

This paper supplements existing Action Plan materials that address CO2 emissions in the 

context of methods for resource planning1

 and establishing the business case for energy 

efficiency.2 It focuses more fully on energy efficiency in a climate policy context, exploring the 

role of state-level policies in increasing investment in energy efficiency across the nation’s 

buildings and industrial facilities. Policy options include building codes, state-level appliance 

standards, voluntary standards, labeling and rating, administered energy efficiency programs, 

and utility regulatory policies that support investment in energy efficiency where cost-effective. 

The paper’s key objectives are to: 

Summarize research and analysis on the magnitude and cost of the energy efficiency 

resource in the United States, especially with respect to its potential to cost-effectively 

reduce CO2 emissions. 

Inventory and summarize the current range of policy and program approaches that seek 

to leverage energy efficiency as part of GHG reduction strategies across the United 

States, focusing on state and regional efforts. 

Describe the nature and magnitude of the major market and regulatory barriers that 

currently prevent energy efficiency from realizing its full economic potential. 

Briefly summarize the suite of energy efficiency policies and programs that can reduce 

these key market and regulatory barriers and help capture a larger portion of the 

available cost-effective potential, referencing the tools and resources offered by the 

Action Plan as appropriate. 

Further, through review and synthesis of numerous studies and other information sources, this 

paper provides support for the following conclusions: 

Energy efficiency is a relatively large and low-cost carbon abatement resource in the 

United States. 

Current U.S. investment levels in energy efficiency tap only a small amount of the 

available low-cost energy efficiency. 

If developed substantially beyond current investment levels, energy efficiency can lower 

the costs of achieving GHG reductions. 

Increased energy prices alone (stemming from policies requiring GHG emissions 

reductions) will not accelerate efficiency investment sufficiently to tap the majority of 

efficiency’s economic potential. This is due not only to market and regulatory barriers, 

but also to the limits of price inelasticity of energy consumption in many end-use 

markets. 

Market and regulatory barriers can be reduced through targeted energy efficiency 

policies and programs, with the effect of increasing energy efficiency investment, 

reducing GHG emissions, and reducing the overall economic cost of climate policies. 

Many state and local governments, recognizing the important role of energy efficiency in 

their GHG reduction strategies, have pursued targeted policies and other initiatives to 
1-4 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

advance energy efficiency. A review of these initiatives provides useful information for 

policy-makers at all levels of government. 

1.2 Structure of the Paper 

The paper discusses these topics as outlined below: 

Chapter 1. The size and economic value of the energy efficiency resource and its 

potential to cost-effectively reduce CO2 emissions. 

Chapter 2. Current costs and benefits of investments in energy efficiency. 

Chapter 3. The limitations to advancing energy efficiency through price mechanisms 

alone. 

Chapter 4. Summary of energy efficiency policies and programs that advance low-cost 

energy efficiency. 

Chapter 5. Review of current climate policies across the United States that explicitly 

employ energy efficiency. 

Chapter 6. Summary of findings and recommendations. 

1.3 Development of the Paper 

Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions is a 

product of the National Action Plan for Energy Efficiency. A conceptual outline and drafts of this 

paper were prepared with direction and comment by the Action‘s Plan Leadership Group (see 

Appendix A for a list of group members), as well as the valuable input of an Advisory Group 

(see the “Acknowledgements” section for a list of members). Bill Prindle of ICF International 

served as project manager and primary author of the paper under contract to the U.S. 

Environmental Protection Agency (EPA). 

1.4 Notes 

1

 See Chapter 1 and Chapter 3 of National Action Plan for Energy Efficiency (2006), as well as National 

Action Plan for Energy Efficiency (2007c). 

2

 See Chapter 4 of National Action Plan for Energy Efficiency (2006). 
National Action Plan for Energy Efficiency 2-1

2: The Size, Economic Value, and Emissions 

Impacts of Energy Efficiency Resources 

This chapter reviews recent leading studies and materials that assess the potential for 

energy efficiency to provide low-cost reductions in CO2 emissions. It summarizes these 

studies, highlights key considerations, and presents key findings. 

The scale of the energy efficiency resource as a low-cost abatement option for CO2 emissions 

can be assessed by examining studies and planning documents that fall into the following 

categories: 

Energy efficiency potential studies that estimate the overall cost-effective resource 

capability for energy efficiency to provide energy, economic, and environmental benefits 

for various energy types, timeframes, and geographic areas. 

Energy resource plans that assess the specific role energy efficiency can play in 

meeting energy needs for a specific geographic area or energy system. These plans 

often draw on potential studies, but apply them in a more focused and constrained 

framework. 

Energy efficiency program portfolio evaluations and program filings that offer 

detailed plans on the energy that can be saved through energy efficiency and the cost of 

the saved energy. 

Studies designed specifically to assess the CO2 reduction potential of energy 

efficiency, building upon the overall energy efficiency potential studies. 

2.1 Potential Studies for Energy Efficiency 

Numerous potential studies have been undertaken over the last decade to assess the 

availability and cost of energy efficiency. These studies have been performed at the national, 

regional, and state levels and employ various screens (e.g., technically feasible, economically 

feasible, programmatically achievable) to assess the energy efficiency resource. Selected 

leading analyses are highlighted in Table 2-1. 

The examples summarized in Table 2-1 vary considerably in absolute savings. Several key 

factors account for this variation. They include the following: 

Sectors, geographic scope, and fuels covered. These studies vary from national to 

state-level in scope. In terms of sectors studied, they range from economy-wide—

including all four key economic sectors (i.e., residential, commercial, industrial, and 

transportation)—to a focus on those sectors using electricity. They also differ based on 

the fuels covered. For example, the McKinsey analysis is U.S. economy–wide and 

covers all fuels. Other studies are state-wide or regional in scope, and many focus 

primarily on electricity. 
2-2 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

Table 2-1. Selected U.S. Energy Efficiency Potential Studies 

Study Author, Date, 

and Title 

Savings 

Potential 

(achievable 

unless 

noted)a

Timeframeb Annualized 

Savingsc Scope 

McKinsey & Company 

(2009). Unlocking 

Energy Efficiency in 

the U.S. Economy. 

23% 

(economic) 

2020 ~2%/year  National 

 All fuels 

 Economic potential 

only 

Itron (2006). California 

Energy Efficiency 

Study. CALMAC Study 

ID: PGE0211.01 

7.5% 

(electricity) 

4.4% (gas) 

2016 <1%/year 

(electricity) 

~0.5%/year 

(gas) 

 California 

 Electricity and gas 

 Technical, economic, 

and achievable 

potential 

 Limited to programs 

of investor-owned 

utilities 

EPRI (2009). 

Assessment of 

Achievable Potential 

from Energy Efficiency 

and Demand 

Response Programs in 

the U.S. (2010–2030). 

5%–8% 

(realistic to 

maximum 

achievable) 

2030 <0.5%/year  National 

 Electricity only 

 Technical, economic, 

and achievable 

potential 

 Limited to programs; 

excludes building 

codes or product 

standards 

WGA (2006). Energy 

Efficiency Task Force 

Report. A report of the 

WGA Clean and 

Diversified Energy 

Initiative. 

20% 2020 >1%/year  18 western states 

 Electricity only 

 Achievable potential 

only 

ACEEE (2008). 

Energizing Virginia: 

Efficiency First.

19% 2025 >1%/year  Virginia 

 Electricity only 

 Achievable potential 

only 

Georgia Environmental 

Facilities Authority. 

2005. Assessment of 

Energy Efficiency 

Potential in Georgia.

2.3%–8.7% 

(electricity) 

1.8%–5.5% 

(gas) 

2010 ~1%/year 

(electricity) 

~0.7%/year 

(gas) 

 Georgia 

 Electricity and gas 

 Technical, economic, 

and achievable 

potential 
National Action Plan for Energy Efficiency 2-3

Study Author, Date, 

and Title 

Savings 

Potential 

(achievable 

unless 

noted)a

Timeframeb Annualized 

Savingsc Scope 

NYSERDA (2003). 

Energy Efficiency and 

Renewable Energy 

Resource 

Development Potential 

in New York State.

16% 2022 <1%/year  New York 

 Electricity only 

 Achievable potential 

only 

 Also addresses 

renewable electricity 

ACEEE (2004). The 

Technical, Economic, 

and Achievable 

Potential for Energy 

Efficiency in the United 

States: A MetaAnalysis of Recent 

Studies.

24% 

(electricity) 

9% (gas) 

Various 1.2%/year 

(electricity) 

0.5%/year 

(gas) 

 Meta-analysis of 11 

reports 

 Includes national, 

regional, and state 

studies 

 Electricity and gas 

 Technical, economic, 

and achievable 

potential 

a

 This table expresses savings potential as a percentage of a future year forecast of energy consumption. 

Percentages tend to vary based on the length of the time horizon; e.g., shorter timeframes tend to show 

smaller savings percentages. It is thus important to take the timeframe into account when comparing 

percentage estimates. 

b

 To provide a more consistent basis for comparison of savings potential, this column presents a rough 

estimate to show energy savings on an annualized basis. This tends to even out the differences in 

timeframe among the various studies. However, these estimates are only approximate and are meant 

as indicative only. 

c

 To provide a more consistent basis for comparison of savings potential, an estimate is made in this 

column to show energy savings on an annualized basis. This tends to normalize the differences in 

timeframe among the various studies. However, these estimates are only approximate and are meant 

as indicative only. 
2-4 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

Potential framework. Potential studies generally use at least one tier in a three-tier 

framework: technical potential, economic potential, and achievable (or market) potential 

(National Action Plan for Energy Efficiency, 2007b). 

– Technical potential is based on the assumption that all major end-use devices and 

building components are replaced instantly with the best available technology, 

regardless of cost. This type of potential reflects the savings possible with today’s 

known technologies. 

– Economic potential applies one or more economic tests or criteria, screening out 

measures that are not economically attractive. These criteria can vary from simple 

payback calculations to complex life-cycle benefit/cost tests. 

– Achievable (or market) potential applies various constraints to economic potential, 

such as availability of funding, program delivery capacity, program design limits, 

market acceptance rates, and other factors. Many of the studies in Table 2-1 use 

various sub-definitions of what is achievable. 

Timeframe. Some potential studies show lower potential savings in terms of absolute 

percentage numbers because their timeframes are shorter than other studies.’ For 

example, the Georgia study covers only five years, while the ACEEE Virginia study 

covers 17. To address differences in timeframes, Table 2-1 provides estimates of the 

annualized savings where possible. 

Technology assumptions. Part of the variability of these studies’ results stems from 

differences in the energy efficiency measures selected for analysis and different 

assumptions about their cost and performance. Some use very detailed “bottom-up” 

methods of aggregating thousands of different efficiency measures; others use more 

aggregated or stylized characterizations of technology choices in various end-uses and 

markets. 

Economic assumptions. Key parameters that drive variations in the findings for 

economic potential studies include the assumed discount rates used for present value 

analyses and the costs of avoided energy. Appropriate values for these factors can vary 

by geographic region and sector, among other considerations. 

Technologies versus practices. Many potential studies are “widget-based,” which 

means they look at individual equipment measures that can improve the efficiency of 

specific products or systems. However, significant efficiencies can be found in systems 

and whole buildings through design and operating practices. Such improvements are 

harder to standardize, and they are left out of many studies. Including such approaches 

can improve efficiency potential study estimates on a technical or economic basis, 

though implementing them consistently in energy markets can be challenging—which 

can limit the achievable estimates for such approaches. 

Policy and other “baseline” considerations. Studies vary considerably in their 

assumptions regarding the fraction of economic potential that can be achieved through 

existing market forces and policies. Market-based, autonomous trends driven by market 

forces such as energy prices and technology advancement can be projected to capture 

some fraction of economic potential. Policies and programs already in place can be 

projected to capture another fraction, leaving a remainder to be captured by additional or 
National Action Plan for Energy Efficiency 2-5

incremental policies and programs. Some studies focus on what energy efficiency 

programs can achieve, such as the EPRI and Itron studies. Others, including the ACEEE 

and Georgia studies, consider a broader suite of policies such as mandatory building 

codes and product standards. 

Technological change. Potential studies vary in their assumptions about changes in 

the costs and energy performance of end-use technologies over time. Some studies 

assume no change from current levels. Other studies assume varying degrees of 

change over time. The longer the timeframe accounted for in the study, the greater the 

impacts these assumptions will have. 

While less extensive, the analytical literature on natural gas end-use energy savings is also part 

of the research record. Natural gas potential studies tend to show somewhat lower potential as 

a total fraction of gas consumption, in part because the number of end-uses for gas tends to be 

fewer in typical buildings, which limits the number of efficiency measures available for study. In 

addition, basic differences between natural gas and electricity end-use applications can limit 

efficiency potential based on current technologies.1

2.2 Efficiency Potential in Utility Resource Planning Studies 

A number of utility or regional energy resource plans forecast energy savings from energy 

efficiency programs and policies, building upon the information contained in energy efficiency 

potential studies in many cases (National Action Plan for Energy Efficiency, 2007b, 2007c). 

Often referred to as integrated resource planning, these plans and their development processes 

have a periodic cycle and identify supply and demand resource options needed to meet utility 

customers’ future energy needs. Resource planning studies typically use many of the same data 

sources and analytical techniques applied in potential studies. The principal difference is that 

resource planning analysis uses timeframes, economic assumptions, and other factors specific 

to the utility service area. 

Energy efficiency savings, when used in a resource plan, tend to be at the lower end of the 

energy efficiency potential spectrum. This is true for several reasons, including that the potential 

is typically limited to what can be achieved with the energy types of the utility and can be limited 

to the types of energy efficiency programs that utilities typically administer. These studies 

typically use conservative estimates of energy savings to be deemed realistic and reliable for 

the purposes of planning energy supply. Resource plans can also be built up from individual 

program designs; these programs may draw on some of the data in potential studies, but tend to 

use market-based estimates of what has been achieved through energy efficiency programs 

and funding projections to estimate expected impacts. 

Below are brief summaries of selected recent studies showing the expected energy savings 

from energy efficiency as part of integrated resource planning. 

Duke Energy. In 2007, Duke Energy Carolinas issued an energy efficiency potential 

study for North Carolina. It found a technical potential over a 20-year study period of 32 

percent of forecast load. Economic potential over 20 years was projected at 18 percent 

of forecast load (Forefront Economics, Inc., H. Gil Peach and Associates, and PA 

Consulting Group, 2007). These numbers are comparable with a North Carolina Utilities 

Commission potential analysis conducted prior to the Duke study, which estimated 

technical potential of 33 percent and economic potential of 14 percent (GDS Associates, 

2006), although the timeframe was shorter, 11 years vs. 20 years. These numbers are 
2-6 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

also comparable to those in the ACEEE meta-review of 11 studies that found median 

technical potential of 33 percent and median economic potential of 20 percent. 

Western Governors’ Association (WGA). In 2005, WGA set a goal of reducing 

electricity usage by 20 percent in 2020 compared with baseline forecasts. In 2006, a 

report was issued comparing the resource plans of more than a dozen utilities in the 

western states with the WGA’s 20 percent goal. The report is one of very few attempts to 

compare efficiency components of utility resource plans across a large number of states 

and utilities. It found that some utility plans contained energy efficiency savings 

projections that would achieve a substantial fraction of the 20 percent goal, and others 

held much lower efficiency gains (Hopper et al., 2006). More specifically, the report 

shows that the California utilities, which have the most aggressive energy savings 

targets in the region, have efficiency resource plans expected to offset over 70 percent 

of forecast load growth, about 60 percent of capacity growth, and 10 percent of total 

energy consumption by 2013, the last year of the study timeframe (see Table 2-2) 

(Hopper et al., 2006). Further, they would reduce annual energy load growth by about 1 

percent (see Figure 2-1) (Hopper et al., 2006). 

Northwest Power and Conservation Council (NWPCC). The NWPCC is a unique 

organization, created by Congress in the 1980 Pacific Northwest Electric Power 

Planning and Conservation Act as a resource planning structure for the region served by 

the federal Bonneville Power Administration. While its authority does not extend to all 

retail utilities in the region, the Council’s planning process exerts substantial influence, 

and its resource plans are viewed as credible and authoritative. The Council’s Fifth 

Power Plan, issued in 2005, projects that cost-effective and achievable energy efficiency 

could reduce forecast load growth by just over 50 percent by 2025. This planning 

process includes a broad set of energy efficiency policies including codes and standards 

as well as utility-administered programs. The expected savings from energy efficiency in 

the future are in addition to substantial savings achieved through programs that have 

been in place for more than 20 years (see Figure 2-3). 
National Action Plan for Energy Efficiency 2-7

Table 2-2. Summary of Utilities' Progress Toward the WGA Clean and Diversified 

Energy Committee Goal of 20 Percent Reduction in Energy Consumption by 2020 

Plan Program Effects as Percent of Total Energy Requirements (%)a

Utility 

2008 2013 

Avista 2.5 4.8 

BC Hydrob 3.8 6.0 

Idaho Power 0.4 0.9 

Nevada Powerc 0.7 — 

NorthWestern 2.9 5.9 

PacifiCorp 1.9 3.4 

PGEd 2.8 5.1 

PSCo 1.4 2.8 

PSEe 5.7 10.4 

PG&Ef 5.0 10.1 

SCEf 5.3 10.4 

SDG&Ef 6.7 11.3 

Sierra Pacificg 1.4 — 

Source: Hopper et al., 2006. 

Note: The authors made assumptions in calculating italicized values. Values in regular font are compiled 

directly from resource plan data. 

a

 Total energy requirements do not include load reductions from plan program effects or reserve margins. 

b

 BC Hydro’s plan only commits to implementing its PowerSmart-2 program through 2012; possible 

continued savings from PowerSmart-3 are included for 2013. 

c

 Nevada Power only reported annual savings for 2004; this level of savings was assumed for each year 

from 2004 through 2008. 

d

 PGE identifies plan program effects for 2005–2011; the 2013 value was extrapolated. 

e

 PSE values include residential fuel conversion programs; stand-alone energy-efficiency program 

savings were not available. 

f

 The energy savings goals for the California utilities include all programs administered by the utilities, 

including those offered to direct access customers. Some portion of savings from energy-efficiency 

standards is included in these goals, as the utilities administer programs to support their 

implementation. 

g

 Sierra Pacific only reported annual savings for 2005; this level of savings was assumed for each year 

from 2004 through 2008. 
2-8 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

Figure 2-1. Summary of Utility Energy Load Growth Forecasts Through 2013 With 

and Without Energy Efficiency Programs 

Source: Hopper et al., 2008. 

In reviewing resource plans, it is important to be aware that these plans are developed using 

locally and or regionally specific information and guidelines. In the NWPCC planning process, 

efficiency is treated prominently, consistently, and transparently, and is included in the plan as 

achievable potential, not as the impacts of specific program portfolios. In most utility resource 

plans, efficiency impacts are based on estimates from programs likely to be implemented. 

2.3 Energy Efficiency Resources in Current Program Portfolios 

A number of states and utilities now have substantial experience deploying energy efficiency 

resources in comprehensive program portfolios, and the results of these efforts provide support 

for estimates of the savings that can be achieved through planned energy efficiency initiatives. 

The reported impacts from a sampling of these programs include: 

California. The state’s three largest investor-owned electric utilities have just completed 

a three-year program cycle (2006–2008), driven by plans developed under the California 

Public Utilities Commission (CPUC). A snapshot of the companies’ cumulative savings 

impacts to date is shown in Figure 2-2. 

Figure 2-2 shows the total gigawatt-hours (GWh) of energy savings estimated for each 

month from measures installed in that or prior months. “Committed” refers to savings 
National Action Plan for Energy Efficiency 2-9

from projects that participated in programs in that month, but whose installation was not 

completed in that month. The installed savings in Figure 2-2 were reported in the CPUC 

Web-based reporting system, and represent about 3 percent of estimated 2008 investorowned utility electricity sales. This means that, over the 2006–-2008 program period, 

savings are averaging about 1 percent of total sales for each year’s program efforts. This 

is consistent with the efficiency savings potential estimates in the studies summarized in 

Table 2-1. 

Minnesota. The state’s Conservation Improvement Program (CIP) has continued fairly 

steadily for more than a decade. A 2005 report by the state’s Office of the Legislative 

Auditor found that the investor-owned utilities’ CIP savings totaled 328 million kilowatthours (kWh) in 2003 (Minnesota Office of the Legislative Auditor, 2005). This is about 

0.8 percent of 2003 investor-owned utility electricity sales, which is also within the range 

of estimates found in the potential studies in Table 2-1. 

Pacific Northwest. In the NWPCC Fifth Power Plan cited earlier, the Council estimates 

the impacts of regional energy efficiency programs operated since 1980. Figure 2-3 

summarizes those estimates. While this figure includes the impacts of state building 

energy codes and federal appliance standards, the great majority of energy savings 

come from utility and Northwest Energy Efficiency Alliance programs. The 2000 average 

megawatts of energy savings, not including the savings from federal codes, are equal to 

about 7 percent of 2002 electricity sales. The annual savings over the last 10 years 

covered by the figure are close to 1 percent of sales. 

Vermont. The Efficiency Vermont program, in which a single entity is contracted to 

deliver energy efficiency programs for the whole state, reports significant impacts from 

its programs. Efficiency Vermont estimates that its program portfolio saved about 

103,000 megawatt-hours, or about 1.7 percent of total electricity sales in 2007, which is 

at the high end of efficiency potential estimates (Efficiency Vermont, 2008). This savings 

level is the highest to date and is the result of significantly higher levels of investment in 

energy efficiency programs. This level of savings is estimated to fully offset growth in 

electricity sales. Figure 2-4 illustrates the annual impacts of the Efficiency Vermont 

program since 2000. Figure 2-4 also offers a result that might be unexpected: at higher 

levels of energy efficiency savings, the amount saved per dollar spent goes up. While it 

is intuitive to expect that the “law of diminishing returns” would eventually reduce the 

savings yield per dollar, energy efficiency programs demonstrate that economies of 

scale may also influence the savings yield per dollar. 

These estimates of savings from energy efficiency typically represent the savings achievable 

through utility- or state-administered programs. The Pacific Northwest stands out as an effort 

that represents the savings from a more comprehensive set of energy efficiency policies. 
2-10 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

Figure 2-2. California Utilities’ Energy Efficiency Program Impacts, 2006–2008 

Source: CPUC Energy Efficiency Groupware Application reporting system: 

<http://eega2006.cpuc.ca.gov/Default.aspx>. 

Figure 2-3. Northwest Power and Conservation Council Efficiency Estimates 

Source: NWPCC, 2009. 
National Action Plan for Energy Efficiency 2-11

Figure 2-4. Efficiency Vermont 2007 Impacts 

Source: Efficiency Vermont, 2008. 

2.4 Energy Efficiency’s Potential Impact on CO2 Emissions 

Efficiency has long been discussed as a “no regrets” element of climate policy because it offers 

a cost-effective energy resource even in the absence of greenhouse gas reduction goals or 

associated policies. Thus, reducing CO2 emissions associated with energy usage is just another 

benefit to an already cost-effective strategy. Efficiency has been viewed as providing at least 

two broad benefits in the climate arena: (1) slowing the growth of energy use, to buy time for 

non-emitting supply technologies to reduce average emissions rates, and (2) reducing the cost 

of meeting CO2 emissions reduction goals. 

Efforts to quantify the link between energy efficiency and CO2 emissions have been fewer than 

analyses of energy efficiency potential, and have generally been conducted in long-term, 

aggregate frameworks at the national level. In electricity systems, because electricity usage is 

distant from the generation facilities that emit CO2, efficiency’s impact on CO2 emissions is 

indirect, and it depends on specific factors like the hourly load shape impact of efficiency 

measures and the marginal carbon emissions rate at a given hour for the affected power 

system. Studies often use national or regionally averaged emission factors to address this 

issue. 

Recent studies of the impact of energy efficiency on CO2 emissions include: 

EPRI’s PRISM analysis. This 2007 report included end-use efficiency in addition to a 

range of low-carbon supply technologies in a high-level estimate of their potential for 

reducing U.S. electricity-sector CO2 emissions in 2030. The study assumed that 

efficiency could reduce average annual growth rates by 30 percent, based on an 

assumed average end-use energy intensity improvement of 20 percent. Combined with 
2-12 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

low-carbon supply technologies, efficiency would contribute substantially to a 45 percent 

reduction in power-sector CO2 emissions from the 2007 U.S. Energy Information 

Administration (EIA) Annual Energy Outlook reference case. While the report does not 

specify exact emissions impacts by technology type, interpretation of report graphics 

indicates that efficiency would reduce 2030 CO2 emissions by 200 to 300 million metric 

tons, or about 12 to 18 percent of a combined 1,600 million metric ton reduction in 2030 

(EPRI, 2007).

McKinsey & Company. McKinsey has developed several carbon abatement cost 

curves that highlight the leading role of energy efficiency in low-cost abatement 

strategies (McKinsey & Company, 2007). The mid-range cost curve shows that roughly 1 

billion tons of CO2 emissions reductions are available annually in the 2030 timeframe 

through energy efficiency technologies (see Figure 2-5). Energy efficiency technologies 

account for most of the lowest-cost resource options, shown on the left side of the 

graphic. While the level of detail available in the report does not precisely segment 

efficiency versus other technology impacts, McKinsey’s analysis also estimates costs 

per ton of CO2 emissions reduced. Most energy efficiency technologies are shown as 

negative-cost measures. This negative-cost calculation is based on net life-cycle costs, 

measured against reference case estimates of energy supply costs. McKinsey does not 

include non-capital costs, such as the administrative and other program costs needed to 

overcome market barriers, and so may somewhat underestimate the total cost of 

delivering efficiency resources. McKinsey’s use of the life-cycle-cost framework, in which 

efficiency investments show lower lifecyle costs than reference supply investments and 

therefore have negative relative costs, does not suggest that efficiency bears no initial 

capital cost.2

 Ultimately, from the policy-maker’s perspective, the issue of “negative cost” 

is a question of relative costs—the relative cost of resource choices. If energy efficiency 

resources cost less on a life-cycle basis than other resource choices, they would be 

preferred in a least-cost policy. 
National Action Plan for Energy Efficiency 2-13

Figure 2-5. McKinsey Carbon Abatement Cost Curve 

Source: McKinsey & Company, 2007. 

IPCC. The IPCC’s mitigation working group developed substantial analysis on energy 

efficiency and carbon abatement potential (IPCC, 2007). Their report shows that more 

than 2.5 gigatons of CO2 emissions reductions are available through end-use energy 

efficiency in the countries belonging to the Organisation for Economic Co-operation and 

Development (OECD), at costs less than $20 per ton of CO2. While this work is primarily 

global in scale, the findings generally apply to U.S. markets on a proportional basis. 

Figure 2-6 summarizes the projected contributions from various sectors. Note that the 

buildings sector holds the largest fraction of low-cost emissions reduction potential, and 

most of that comes from electricity savings. 

American Solar Energy Society (ASES). The 2007 ASES report shows energy 

efficiency accounting for a large fraction of the CO2 emissions reductions necessary in 

2030 to meet goals of reducing CO2 emissions by 60 to 80 percent by 2050 (Kutscher, 

2007). Efficiency accounts for 57 percent of the 1.2 billion tons of carbon equivalents 

that the study finds could be achieved by 2030. The total reduction potential is close to 

that of the McKinsey report. The ASES study developed a set of energy efficiency supply 

curves, which calculate the cost of saved energy on a levelized life-cycle basis. They 

project the energy efficiency resources in the study to cost less than $6 per million 

British thermal units (Btu). U.S. energy costs in recent years have been in the $10 per 

million Btu range. Figure 2-7 summarizes the ASES study’s projected impacts. 
2-14 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

Figure 2-6. IPCC CO2 Emissions Abatement Estimates 

Source: IPCC, 2007. 

OECD = Organisation for Economic Co-operation and Development; EIT = economies in transition. 

Figure 2-7. CO2 Reductions From Energy Efficiency and Renewable Energy 

Source: Kutscher, 2007. 
National Action Plan for Energy Efficiency 2-15

Scenarios for a Clean Energy Future (CEF). The CEF study projected carbon 

emissions and reductions out to 2020. In its advanced scenario, with maximum 

reductions of 565 million tons of CO2 in 2020 across a range of policies, energy 

efficiency accounted for 65 percent of total emissions reductions. The CEF study 

projected investment costs of $82 billion in 2020, offset by energy bill reductions of $189 

billion, for a net economic benefit of $107 billion. 

Action Plan Vision for 2025. The Action Plan has a goal of achieving all cost-effective 

energy efficiency by 2025. The national cost-effective energy savings estimate was 

developed by extrapolating the costs and benefits from existing energy efficiency efforts; 

this estimate has been translated into the CO2 reductions that would result from 

achieving this goal. The goal is equivalent to a reduction in greenhouse gas emissions 

on the order of 500 million metric tons of CO2 annually (National Action Plan for Energy 

Efficiency, 2008a). The Vision does not assume a price for CO2. 

2.5 Summary of Findings 

A review of the studies presented in this chapter leads to the following observations: 

The scope of cost-effective energy efficiency is large, and a substantial percentage of 

future energy needs can be met through efficiency resources. Several studies in the 

electricity sector indicate that savings in the range of 1 percent of total sales annually are 

achievable. Continued over several years, these modest annual savings can add up to a 

large portion of a long-term forecast. These estimates suggest that efficiency policies 

and programs can offset a significant portion of electric load growth, on the order of 50 

percent or more (National Action Plan for Energy Efficiency, 2008a). The percentage of 

load growth that can be offset depends in part on underlying forecast growth rates. In 

high-load-growth areas, efficiency may have a lower percentage impact on load growth, 

while in slower-growth areas, efficiency can offset a higher fraction. 

Substantial energy savings and greenhouse gas reductions are possible through energy 

efficiency programs administered by states, utilities, or third parties. The promise found 

in potential studies is being borne out by measured impacts from programs operated in 

some states over extended timeframes. 

Extrapolating the costs and benefits of existing programs managed by states and/or 

utilities reveals a national potential to meet 50 percent or more of load growth, or 20 

percent of electricity demand and 10 percent of natural gas demand in 2030. In other 

words, in 2030, peak electric demand would be 20 percent lower than it otherwise would 

be, and natural gas demand would be 10 percent lower than it otherwise would be due 

to the effect of cost-effective energy efficiency programs. 

Studies that cover a full range of markets, end-uses, and technologies show substantial 

energy efficiency savings opportunities across residential, commercial, and industrial 

end-use sectors. While the efficiency potential found in a given region, state, 

metropolitan area, or utility service territory depends on its unique mix of building stock, 

industry sectors, and other factors, potential studies are relatively consistent in finding 

savings opportunities in comparable ranges throughout the country. 

The studies that calculate the CO2 emissions impacts of energy savings show that 

energy efficiency offers substantial low-cost opportunities to reduce CO2 emissions. 
2-16 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

They estimate that efficiency could achieve on the order of one-eighth to one-half of the 

reductions necessary in the 2025–2030 timeframe to attain a longer-term goal of 

reducing CO2 emissions by 60 to 80 percent by 2050.3

2.6 Notes 

1

 For more information, see Nadel et al. (2006). 

2

 The conclusion of the study is accompanied by the following important caution: “Achieving these 

reductions at the lowest cost to the economy, however, will require strong, coordinated, economy-wide 

action that begins in the near future.” Further, the study makes it clear that achievement of the 

identified potential will require strong policy support “needed to address fundamental market barriers.” 

The analysis does not account for the costs associated with such policies. 

3

 There is some confusion in the literature about some studies’ association of the term “negative cost” 

with energy efficiency investments. These studies use negative cost in a life-cycle-cost framework, 

against a benchmark of reference case energy supply costs. In this framework, efficiency can be said 

to bear negative costs on a life-cycle, comparative basis. Such findings should not be confused with a 

present-day, investment-oriented framework, in which all resource choices bear initial capital and other 

costs. From a policy-maker’s point of view, the comparative life-cycle cost perspective can be 

appropriate, and it is also true that the up-front costs of all resource choices must be considered. 
National Action Plan for Energy Efficiency 3-1

3: Costs and Benefits of Current Energy Efficiency 

Investments 

This chapter provides an overview of the costs and benefits of energy efficiency 

programs and policies and presents key findings. 

To better understand the role that energy efficiency can play in reducing CO2 emissions, and at 

what cost, it is important to review available information on the cost of saved energy, the level of 

current investment in energy efficiency across the country, the resulting aggregate savings, and 

the extent to which these efforts are capturing the available low-cost energy efficiency. This 

chapter presents information and key findings on: 

The cost of saved energy. 

Current investments and savings from energy efficiency programs and policies. 

The portion of low-cost, achievable energy efficiency being captured from current 

investments. 

3.1 Cost of Saved Energy 

Various potential studies, resource plans, and program reports and evaluations have estimated 

the cost-effectiveness of energy efficiency, both as an aggregate resource and as individual 

measures and programs. Overall, these analyses find that energy efficiency is relatively 

inexpensive, especially when compared with conventional energy supply resource options. A 

sample of these estimates includes: 

A 2004 ACEEE review of efficiency programs around the United States found that the 

levelized life-cycle cost of saved energy for the programs reviewed ranged from 2.3 to 

4.4 cents per kWh (Kushler et al., 2004). This compares favorably with avoided costs for 

conventional power plants. It is important to note that the definition and the calculation 

methods of “avoided costs” vary from state to state, so there is no single national 

benchmark for the cost of electricity supply resources that would be avoided by 

efficiency programs. In California, 2008–2009 estimates of avoided costs are in the 

range of 9 cents per kWh. This is within a typical range of avoided costs filed in various 

resource plans around the United States. 

Consistently, a nominal calculation from ACEEE’s State Energy Scorecard data 

(Eldridge et al., 2008) shows an average cost of about 20 cents per first-year saved 

kWh. On a levelized life-cycle basis, this translates to a cost of saved energy of 

approximately 2 cents per kWh. This estimate would be termed the “program 

administrator cost” for the saved energy; because customers typically pay a substantial 

portion of total efficiency investment costs, the “total resource cost” of these savings 

would be higher than 2 cents.1

The NWPCC’s Fifth Power Plan (NWPCC, 2005) estimates levelized costs and benefitcost ratios for individual efficiency measures and end-uses. The levelized cost of saved 

energy averages 2.4 cents per kWh, ranging from 1.2 to 5.2 cents. The Council’s 
3-2 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

avoided cost estimates are unique and variable because it uses a mix of low-cost 

hydropower and higher-cost fossil-fuel generation resources in a sophisticated hourly 

modeling approach. An annual average cost of saved energy would fall within this range. 

Efficiency Vermont’s 2007 Annual Report (Efficiency Vermont, 2008) estimates the cost 

of saved energy at 2.7 cents per kWh. Vermont’s avoided costs for electricity supply are 

estimated to average 10.7 cents per kWh. 

The Minnesota CIP evaluation (Minnesota Office of the Legislative Auditor, 2005) shows 

2003 costs of $52 million for annual savings of 328 million kWh. That averages to a cost 

per first-year saved kWh of 16 cents per kWh. While the report does not calculate 

levelized life-cycle costs of saved energy, based on typical measure lives this translates 

to a levelized cost of 2 cents per kWh or less. 

The July 2006 Action Plan report (National Action Plan for Energy Efficiency, 2006) 

references 12 best practice program portfolios with lifetime levelized costs of $0.02 to 

$0.05 per kWh for electricity measures and $0.06 to $2.32 per million Btu for natural gas 

efficiency measures. 

3.2 Total Costs and Savings of Investment in Energy Efficiency 

Technologies and Programs 

Energy efficiency has yielded important benefits across the U.S. economy over the last 35 

years. However, while various analyses have sought to estimate total investment and benefits 

from energy efficiency across the U.S. economy (e.g., Ehrhardt-Martinez and Laitner, 2008), 

such efforts are limited by data and methodology constraints. Reports like the Rand study of 

California’s efficiency policies provide useful examples of the significant streams of economic 

and other benefits these policies and programs deliver (Bernstein et al., 2000). Based on data 

available, energy efficiency delivered through state- and utility-administered programs is funded 

at the following levels and has provided the following benefits: 

Approximately $2 billion (approximately 0.5 percent of utility revenues) is being invested 

annually in state- and utility-administered energy efficiency programs.2

Cumulative annual electricity savings total 63 billion kWh (about 2 percent of retail sales) 

and cumulative annual natural gas savings total 135 million therms (0.1 percent of retail 

sales) as of 2006.3

 The cumulative electricity savings have avoided the need for 16 

gigawatts of new capacity.4

These estimates have been developed from a variety of available information sources,5 which 

introduces inconsistencies in timeframes, reporting categories, universe of respondents, and 

quality control of data. Due to data limitations, these initial values are likely to underestimate the 

full contribution that energy efficiency investments are making to reduce energy demand as well 

as the full level of energy efficiency investment. Some of the key limitations include: 

The energy savings values only capture savings from administered energy efficiency 

programs and do not reflect energy savings from other state and local efforts such as 

building energy codes, state-level appliance standards, and local and state lead-byexample initiatives. 
National Action Plan for Energy Efficiency 3-3

The energy savings values do not include the benefits from national efforts to promote 

energy efficiency, federal appliance standards, or the autonomous rate of improvement 

in efficiency across the economy. 

The program funding values represent program costs alone and not the costs that 

program participants may bear. 

Additional attention is necessary to expand the breadth and accuracy of energy efficiency 

resource information in order to improve the ability to measure progress toward all cost-effective 

energy efficiency using these national performance metrics. 

3.3 Macro-Economic Benefits of Efficiency Resource Investments 

Some of the potential studies reviewed in this chapter assess the wider economic benefits of 

energy efficiency investments. Examples include: 

ACEEE state analyses. The Virginia study cited earlier, and other recent ACEEE state 

efficiency potential studies, include state-level macroeconomic assessments of the 

policies recommended in the study. In Virginia, the study estimates that in 2025, 

electricity customers would save a net $2.2 billion on their bills, nearly 10,000 net new 

jobs would be created, and the state economy would expand by almost $900 million. 

The comparable ACEEE study in Ohio estimates net electricity bill savings of $3.3 billion 

in 2025, 32,000 net new jobs, and $2.5 billion in increased gross state product. 

EPRI PRISM study. EPRI used its general-equilibrium MERGE macroeconomic model 

to estimate economic impacts from carbon emissions reduction policies, with and without 

advanced technology deployment. The MERGE analysis estimated that a carbon 

emissions policy scenario without advanced technology deployment could reduce gross 

domestic product through 2030 by as much as $1.5 trillion. Full deployment of advanced 

technologies as outlined in the PRISM analysis could reduce that impact by as much as 

$1 trillion. Efficiency was estimated to provide about $250 billion, or about 25 percent, of 

that $1 trillion impact reduction. 

Scenarios for a Clean Energy Future. The CEF study did not include direct 

macroeconomic modeling for its technology scenarios, because the incremental impacts 

on gross domestic product were estimated to be too small to be meaningfully calculated. 

However, a discussion paper included as an appendix estimated a range of possible 

secondary economic impacts. This discussion, while not specific in its conclusions, 

estimated that negative macroeconomic impacts from the clean energy scenarios would 

in most cases be lower than the net economic benefits of the technology investments. 

3.4 Investment Necessary to Achieve Economic Potential 

Current levels of energy efficiency investment are substantially less than necessary to capture 

all cost-effective energy efficiency. For example, leading energy efficiency programs being 

deployed in some states, as described above, are being funded at 2 to 3 percent of energy 

revenues and delivering energy savings on the order of 1 percent of total sales per year. If these 

programs were deployed throughout the country, annual energy efficiency program funding and 

investment would be on the order of four to five times larger. In this context, total efficiency 
3-4 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

program spending in the utility sector might rise as high as $10 billion annually if all states 

pursued savings goals and program portfolios comparable to those in leading states. 

These estimates do not reflect the investment requirements of implementing energy efficiency 

policies such as building codes and minimum appliance standards. Further, focusing just on the 

state efforts that have been designed to capture achievable cost-effective energy efficiency 

would suggest that these investment levels should be higher. 

3.5 Summary of Findings 

The key findings in this area are summarized below: 

Energy efficiency is a low-cost resource. The studies cited in this chapter show a 

levelized cost of 2 to 5 cents per saved kWh of electricity. While some of these estimates 

come from potential studies, many come from program impact reports, and are thus 

borne out by program field experience. 

Public investment in efficiency is a fraction of the levels justified by potential 

assessments. If all states spent the fraction of revenues expended by leading states, 

total utility-sector efficiency spending would be as high as five times the current national 

total. 

Efficiency can produce net economic benefits. There are macroeconomic benefits 

from the pursuit of energy efficiency, including reduced energy expenditures for end-use 

consumers, increased spending of saved energy dollars in other sectors, increased 

employment and personal income, and increased total economic output. 

3.6 Notes

1

 For a more complete discussion of cost-effectiveness issues, see the Action Plan report 

Understanding Cost-Effectiveness of Energy Efficiency Programs: Best Practices, Technical Methods, 

and Emerging Issues for Policy-Makers (National Action Plan for Energy Efficiency, 2008c). 

2

 The annual spending value considers both ACEEE’s 2006 actual electricity efficiency program 

spending (Eldridge et al., 2008) and CEE’s 2007 budget estimates for residential, commercial, and 

industrial electricity and gas efficiency programs (Nevius et al., 2008). CEE budget estimates capture 

responses from both CEE members and nonmember administrators of energy efficiency programs. 

Program funding for low-income, load management, and other programs is not included in these 

estimates. Actual 2006 spending for electricity efficiency programs comes from ACEEE, leveraging 

EIA and ACEEE’s independent information collection efforts. 

3

 Natural gas savings are from CEE for their members only (Nevius et al., 2008) and include estimated 

savings from measures installed in 2006, as well as those installed as early as 1992 that were still 

generating savings as of 2006. 

4

 Annual incremental electricity savings are from ACEEE (Eldridge et al., 2008) and cumulative 

electricity savings are from EIA Form-861 data (EIA, 2008), both for year 2006. Values reflect reported 

data for administered energy efficiency programs only and do not include low-income programs or 

other load management efforts such as demand response. Cumulative savings do not capture those 

programs administered by state entities. Peak electricity savings are from EIA Form-861 data for year 
National Action Plan for Energy Efficiency 3-5

2006 and reflect reported data for utility-administered energy efficiency programs only and do not 

include load management programs. 

5

 For additional information on data sources and calculation methodologies see Appendix E of National 

Action Plan for Energy Efficiency (2008a). 

National Action Plan for Energy Efficiency 4-1

4: Limitations to Advancing Energy Efficiency 

Through Energy Pricing Policies 

This chapter summarizes key barriers to energy efficiency and the extent to which price 

signals can influence energy consumption. Reducing carbon emissions through energy 

efficiency policies and programs requires that a broad suite of market and regulatory 

barriers be addressed. 

In traditional energy and environmental policy analysis, getting energy prices “right,” such that 

they fully reflect direct economic costs as well as indirect environmental social costs, is a central 

concern.1

 In this approach to policy-making, setting the right energy price signals would result in 

the best allocation of resources among various options. It would suggest that proper price 

signals would also capture the cost-effective energy efficiency resource potential embedded in 

the various sectors of the U.S. economy.2

 This chapter explores two factors that limit the effects 

that price signals have in driving investments in energy efficiency: 

The substantial and persistent market barriers that affect large portions of energy 

end-use markets. Decades of experience in real energy markets, backed up by recent 

analyses that seek to quantify the effects of market barriers, show that barriers are real, 

large, and lasting, and require targeted policy and program initiatives to overcome. 

There are both significant market barriers and regulatory barriers that limit investment in 

cost-effective energy efficiency and which need to be addressed. 

The limits of price elasticity in effecting net changes in energy use throughout the 

economy. While price elasticity effects are real, they are also counteracted by other 

forces such as income elasticity (the tendency for consumption to rise and fall with 

income) and cross-elasticity (reduced consumption of one good in response to the 

change in price of another good), such that the net effect of price signals on energy 

consumption can be blunted. Price elasticities are further muted by the lack of 

transparency in electricity and natural gas pricing and billing. 

Following is a discussion of these factors and key findings. 

4.1 Market Barriers to Energy Efficiency 

One of the roles of efficiency potential studies is to identify the cost-effective technologies, 

practices, and programs that reduce life-cycle or societal costs, because such measures justify 

policy or program intervention to remediate market failures. Substantial work in this area has 

been undertaken, as seen in Chapter 2. Further, a principal purpose of many of the energy 

efficiency programs and policies already in place at the national, state, and local levels is to 

reduce market or policy barriers that can be shown to significantly limit energy efficiency 

investment, relative to the level of investment that would occur if markets operated “efficiently.” 

There is substantial economic research on the existence and magnitude of market barriers to 

energy efficiency and on the ability of policies and programs to overcome them.3

 Barriers to 

energy efficiency are reviewed in several Action Plan documents (National Action Plan for 

Energy Efficiency, 2006, 2008a, 2008b). Other market barrier research includes the 

International Energy Agency’s recent Mind the Gap report (IEA, 2007). This report segments 
4-2 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

barriers into phenomena that classical economists recognize, conditions that behavioral 

economists and psychology and sociology practitioners might study, and conditions that energy 

efficiency practitioners experience. 

Several commonly acknowledged market barriers are described below: 

The principal-agent barrier. This involves a condition in which one entity (the agent) 

makes energy efficiency investment decisions and another entity (the principal) pays the 

energy operating costs that flow from those decisions. The most common principal-agent 

barrier observed in the United States is the builder-buyer barrier, in which building 

designers or construction contractors determine the efficiency levels for major building 

systems and equipment. This can include building thermal performance, heating and 

cooling systems, hot water systems, lighting systems, and major appliances. The 

builder’s equipment and design choices will ultimately determine much of the building’s 

energy consumption requirements. Builders will rarely optimize energy performance on a 

life-cycle basis, unless they are under contract directly to informed buyers who specify 

such performance and are willing to pay for it. This “custom-building” or owner-designed 

construction accounts for a small minority of U.S. building starts. In residential or 

commercial rental property, tenants normally lack the ability to specify energy 

performance for major building systems or appliances, and landlords typically pass 

through energy costs to tenants, so they lack the incentive to reduce energy usage in 

their buildings. Principal-agent problems can exist even within organizations: for 

example, if a procurement department buys energy-using equipment for the organization 

on a low-bid first cost basis, and facility operators seek to reduce operating costs 

through efficient technologies that have a cost premium, the organization may 

chronically under-invest in efficiency. 

The transaction-cost barrier. Economists sometimes use terms like “information-cost” 

or “search cost” for this type of barrier. It refers to the condition in which energy users, 

even if they have the ability to consider the energy efficiency performance of a product 

or system, are unwilling to invest the time, effort, and analysis to make the best 

economic decision. Residential and small commercial consumers frequently experience 

this situation: they need to replace a product, such as a water heater, but lack the 

knowledge, expertise, and time to figure out the most economical decision. These 

factors—information, time, and analytical skill—add up to a transaction barrier that 

average consumers are unwilling or unable to overcome. By contrast, some larger 

customers and some energy professionals have the information, expertise, and time to 

make better decisions, so some customer markets are less affected by this barrier. 

Many other conditions are often referred to as barriers. Consumers’ aversion to risk, competing 

attributes of products that drive decisions based on non-energy factors, and other conditions 

can be observed in markets and consumer behaviors. Understanding these phenomena can be 

helpful for some purposes, such as designing the marketing, outreach, and delivery systems for 

efficiency programs, or public education and media efforts. However, the scope of this paper 

limits the extent of such a review, so this assessment is limited to the more classic barrier types. 

These barriers have a significant limiting effect on total investment by energy end-users and 

others in cost-effective energy efficiency. 
National Action Plan for Energy Efficiency 4-3

4.2 Regulatory Barriers 

Policies can create additional barriers in some cases by adding constraints or prescriptions to 

market structures or practices. In the power sector, regulatory barriers to efficiency revolve 

around utility resource planning and ratemaking policies. 

Examples of regulatory barriers to efficiency in the power sector include: 

Resource planning practices. While efficiency programs can be deployed rapidly, their 

full potential typically takes decades to realize. The markets for new buildings, energy 

systems, and other end-use products take many years to turn over; efficiency programs 

must be in place for the duration of such cycles to fully realize efficiency’s market 

potential. However, not all jurisdictions undertake resource planning on the 10- to 20-

year timeframes needed to adequately plan for efficiency. In addition to the time horizon 

issues, resource planning must include robust and consistent resource assessment 

methods that treat demand and supply resources with comparable levels of analytic rigor 

(National Action Plan for Energy Efficiency, 2007c). 

Ratemaking practices. The mechanisms by which utilities recover costs and earn 

returns can have a strong effect on investor-owned companies’ willingness to invest in 

demand-side resources. The predominant approach to utility cost recovery in most U.S. 

states links sales to the recovery of variable and some portion of fixed costs, including 

allowed margins. If kWh sales fall short of estimates, utilities’ fixed cost recovery and 

shareholder returns can be reduced substantially. This limits many companies’ 

willingness to invest substantial amounts in energy efficiency (National Action Plan for 

Energy Efficiency, 2007a). 

Unbundling of distribution, transmission, and generation functions. Restructuring 

of these three utility system functions can be argued to increase economic efficiency by 

opening markets to competitive forces. From a resource planning point of view, however, 

unbundling of these functions can also fracture the jurisdictional ability to plan for and 

estimate the resource value of energy efficiency. This is particularly true for distributiononly utilities regulated by state or local government. Because transmission and 

generation are outside these agencies’ jurisdiction, it can be difficult for them to assign a 

fully bundled set of values to energy efficiency resources. Transmission system 

operators, in a related way, are able to value only the transmission-related resource 

benefits of efficiency, and in some cases (e.g., ISO New England and PJM 

Interconnection) can value the generation capacity value if a capacity market has been 

established. 

These barriers are a result of state-level policies, and they have a significant impact in limiting 

investment in cost-effective energy efficiency. The Vision for 2025 and other Action Plan 

materials extensively discuss these barriers and policy and program options for addressing 

them. 

4.3 Price Elasticity 

“Price elasticity of demand” is an economist’s term for the effects of changes in energy prices on 

energy consumption. Price elasticity assumptions underlie many energy policies, relying on 

energy prices to change energy use patterns. While price elasticity is an important market 
4-4 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

factor, experience in end-use markets indicates the significant limits of this effect. Thus, it is 

important to discuss whether pricing policies alone are sufficient to realize the full potential for 

energy efficiency. This section discusses the limits of price elasticity and the implications of 

such limits for policies to encourage efficiency investment in the power sector. 

The limits of price elasticity can be summarized in the following points: 

Market barriers. As discussed above, barriers such as the principal-agent problem and 

the transaction-cost problem have the effect of isolating some energy end-use markets 

from price elasticity effects. This barrier affects a large fraction of residential and 

commercial end-use markets (IEA, 2007). 

Price transparency. End-users can only respond to price signals when prices are 

transparent: that is, when prices are perceived at or before the time of energy 

consumption. For example, in motor fuel markets, drivers see posted fuel prices at retail 

stations before making their purchases, and thus have a very transparent signal that 

may affect both short-term driving behavior and longer-term vehicle purchase behavior. 

By contrast, in utility markets, customers receive bills after they have consumed 

electricity. Bills are often complex, such that customers may have to do arithmetic to 

discover the net price per kWh, then compare that price with what they paid in previous 

periods. This can mask price effects. Moreover, vehicle drivers have more transparent 

choices regarding future energy use: some can drive less in the near term, and/or buy 

more fuel-efficient vehicles in the longer term. Electricity consumers, however, typically 

have dozens of power-using devices in their homes or businesses, and they do not 

typically know which devices will yield the greatest savings if used differently or 

replaced. This compounds the lack of price transparency with a lack of transparency for 

choices in demand reduction. Further, the traditional ratemaking practice of averagecost, non-time-differentiated pricing tends to mask the marginal cost of producing 

electricity. While many states are developing rate and pricing approaches that better 

match the marginal cost of power to retail rates, the prevailing price structures in most 

states continue to rely on average-cost-based rates. 

Countervailing price effects. Price elasticity is but one element of economic price 

theory. Income elasticity and cross-elasticity effects also operate in energy markets, and 

they can serve to counteract price elasticity effects. Income elasticity refers to the effect 

of income on energy demand. In prospering economies, rising incomes tend to drive up 

the demand for energy services. For example, consumers want larger homes and more 

appliances as their incomes increase in good economic times. Cross-elasticity refers to 

effects in which changes in energy prices cause energy users to reduce consumption of 

other goods, rather than directly reducing energy consumption. For example, consumers 

may continue to drive to a shopping center, using the same amount of fuel, but may 

make fewer discretionary purchases on a given shopping trip. Electricity users may see 

electricity as an essential service and may choose to cut back on entertainment or other 

expenses if utility bills rise. While it is difficult to quantify the net effects of price, income, 

and cross-elasticity, for the purposes of this paper it is sufficient to point out that price 

elasticity effects may be limited in some markets. 

Lack of substitutes. The lack of practical substitutes for electricity, natural gas, or 

heating oil in many end-uses also impacts price elasticity. Energy is needed to provide 

services such as heating or hot water, cooling, and ventilation, in addition to food 
National Action Plan for Energy Efficiency 4-5

preparation, cleaning, and entertainment. Fuel switching is frequently not technically 

feasible or economically attractive. 

This chapter’s discussion of the limits of price elasticity is not meant to suggest that energy 

pricing policies have no impact on promoting energy efficiency. Rather, the intent is to point out 

that to realize the potential for efficiency in all end-use markets, pricing policies will need to be 

complemented with other approaches. 

4.4 Summary of Findings 

Assuming that a principal impact of climate policies will be to raise energy prices, energy prices 

alone will not increase efficiency investment to the level needed to tap the majority of 

efficiency’s economic potential. Price signals alone are insufficient because: 

Market and regulatory barriers are large and persistent, especially the principal-agent 

barrier, information-cost or transaction-cost barriers, and regulatory policies in the area 

of utility ratemaking. 

The price elasticity of energy consumption in many residential and commercial markets 

is relatively weak, due to countervailing elasticity effects. Relying solely on price 

elasticity to drive efficiency investment is unlikely to lead to the realization of a large 

fraction of efficiency potential. 

More analysis is needed to quantify the impacts of specific barriers and evaluate the 

solutions designed to address them. 

4.5 Notes

1

 In practice, environmental costs are incorporated to some degree through a number of different 

mechanisms. For example, some state utility commissions require utilities to apply factors 

representing the societal costs of environmental externalities (e.g., cost per ton of CO2 emitted) when 

conducting resource planning. Some federal and state emissions regulations require emission controls 

that increase costs of power plants. These costs are ultimately reflected in electric rates. 

2

 Selected recent references on price elasticity include Barbose et al. (2004), Faruqui and Wood (2008), 

Neenan (2008), McDonough and Kraus (2007), and Siddiqui (2003). 

3

 One of the fundamental distinctions made in the market barrier literature is between market barriers 

and market failures. Some economists distinguish barriers and failures by defining a market failure as 

a condition that reduces energy efficiency and economic efficiency, whereas a market barrier is a 

condition that reduces energy efficiency without necessarily reducing economic efficiency. For 

example, one could point out a market barrier that keeps home builders from constructing homes that 

use 75 percent less energy than current building codes require. However, this condition would only be 

classified as a market failure if the life-cycle cost of the home were lower at the 75 percent energy 

savings level than at the current code level. If it can be shown that energy performance at that level 

does not reduce overall life-cycle costs, builders’ unwillingness to build to that level of performance 

would not be a market failure. If, by contrast, a performance level 30 percent better than current codes 

can be shown to reduce life-cycle costs, and builders still fail to build to this level of performance, that 

would be deemed a market failure. 

National Action Plan for Energy Efficiency 5-1

5: Summary of Energy Efficiency Policies and 

Programs 

This chapter reviews the policies and programs that can address the key market and 

regulatory barriers to energy efficiency. It also outlines tools and resources available 

through the Action Plan to address these barriers and presents key findings. 

A common rationale for public policy and programs aimed at energy efficiency is removing the 

known barriers to energy efficiency in key end-use markets. Another important focus is in the 

policy arena itself, such as reforming regulatory policies to remove utility disincentives to 

efficiency investment. Market barriers can be addressed through direct policy interventions (e.g., 

building codes, appliance standards, setting energy efficiency resource requirements) and 

through voluntary, information- or incentive-based programs administered by utilities, 

government entities, and third parties. Addressing regulatory barriers involves a review of 

regulatory policy specifics and modifications that align with the delivery of energy efficiency 

where it is cost-effective. 

Policies and programs are currently used to: 

Address market barriers. A suite of programs are employed by many state and local 

governments, utilities, and others to address the market barriers limiting investment in 

energy efficiency. These programs generally target the following market opportunities: 

– Purchase of individual products 

– Construction of new buildings 

– Improvement of existing facilities 

Address regulatory barriers. The regulatory barriers can be addressed by state policymakers, utilities, and others through policies in the following areas: 

– Utility regulatory issues 

– Pricing policies 

– Ratemaking policies 

5.1 Addressing Market Barriers 

This section summarizes the policy and program options most commonly used today to address 

market barriers and increase energy efficiency in end-use markets. It matches policy/program 

options to the main markets affected by barriers. Table 5-1 summarizes this approach. 
5-2 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

Table 5-1. Policy/Program Options Matched to Markets 

Market Focus 

Policy/Program Option Individual 

Products 

New 

Construction 

Existing 

Buildings/ 

Facilities 

Mandatory appliance standards X 

Product labeling X 

Voluntary appliance standards X 

Minimum building codes X 

Voluntary building standards X 

Building labeling/benchmarking X X 

Retrofit programs X 

Education and outreach X X X 

Government lead-by-example X X X 

Administered energy efficiency 

programs 

X X X 

5.1.1 Purchase of Individual Products 

Product purchases exemplify a “lost-opportunity” market, in that consumers or businesses 

routinely purchase energy-using products or equipment, and each purchase represents an 

opportunity that will be lost if the efficiency program does not influence the purchaser to make a 

more efficient choice. Principal-agent and transaction-cost barriers can turn millions of these 

routine transactions into lost opportunities. Fortunately, there are several policy tools for 

reducing these lost opportunities. These include minimum appliance standards and approaches 

that go beyond standards, as discussed below. 

Mandatory minimum appliance standards. Minimum appliance standards help 

address the principal-agent problem in new construction and in leased space, as well as 

the transaction-cost barrier that arises in the typical purchase of an energy-using 

product. The latter is best highlighted by explaining how purchases are frequently made. 

If, for example, a hot water heater, air conditioner, or refrigerator fails, the owner’s first 

concern is to replace the unit as soon as possible. This “panic purchase” situation tends 

to severely truncate any broader consideration of efficiency options, and tends to drive 

consumers toward models that are available and affordable on short notice. For many of 

the larger energy-using products, the new construction market and the retrofit markets 

have relatively equal sales, emphasizing the role of appliance standards in addressing 

these various barriers. 

Appliance standards play a complementary role to building codes by addressing the 

devices that consume energy within the building. This is particularly true for residential 

buildings, where federal standards cover most major energy-using devices. It is less so 

for commercial buildings, where some types of heating and cooling equipment—and 

most lighting systems—are not covered by federal standards. 
National Action Plan for Energy Efficiency 5-3

The U.S. Department of Energy (DOE) manages the federal minimum appliance 

standard program, which was first authorized in 1987 and currently covers approximately 

50 products across the residential, commercial, and industrial sectors. States are able to 

set standards for product or equipment types that are not covered by federal law.1

ACEEE’s analysis indicates that several technologies represent opportunities for states 

to enact standards (Nadel et al., 2006). Historical precedent indicates that standards, 

once enacted at the state level, tend to become federal standards over time. 

Manufacturers may oppose state standards, but once those standards are enacted, they 

often negotiate federal standards to avoid having to contend with multiple standards in 

customer markets. As of October 2008, 16 states have set their own appliance 

standards.2

Voluntary product standards and promotion. This approach addresses the principalagent and transaction-cost problems through voluntary approaches. The leading 

example is the ENERGY STAR® program, introduced by EPA in 1992. The program’s 

strategy was to specify and promote products that are significantly more efficient than 

minimum standards and to provide efficient choices for product categories not covered 

by standards. Specifications are set to identify efficient products that are cost-effective to 

the consumer, offering short simple paybacks, while providing for the features and 

performance consumers expect. The ENERGY STAR label is now used on more than 50 

product categories across the residential, commercial, and industrial sectors. Many 

types of organizations are using ENERGY STAR requirements as part of their energy 

efficiency efforts. These include: 

– Retailers in their retail stores. 

– Federal, state, and local governments establishing procurement policies requiring the 

purchase of ENERGY STAR qualifying products. 

– Energy efficiency program administrators using ENERGY STAR branding, products, 

programs, and tools as part of their energy efficiency programs. 

Product energy labeling. Congress established the Federal Energy Guide labeling 

program in the 1970s to provide basic energy use information for major energy-using 

products. The yellow Energy Guide labels seen on home appliances and other products 

make it easier for consumers to select efficient models by reducing the transaction costs 

of comparing the energy efficiency of different models. This provides additional energy 

use information beyond the binary (yes/no) designation of ENERGY STAR. 

5.1.2 New Building Construction 

The new building construction market is another “lost-opportunity” market. The design decisions 

made before construction are difficult and expensive to correct later, making new construction 

the most cost-effective time to achieve major energy savings in the building stock. The new 

construction market is also home to one of the largest and most persistent market barriers that 

limit energy efficiency investment. In U.S. housing and commercial construction markets, the 

builders who make efficiency decisions in design and construction are typically far removed 

from the occupants responsible for paying the building’s energy bills. The “agent”—the builder—

is motivated primarily to limit upfront construction costs, whereas the “principal”—the ultimate 

owner/tenant who pays the energy bills—is motivated to find the lowest total cost of owning and 

operating the building. In U.S. construction markets, many buildings are built speculatively, 
5-4 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

meaning that the builder does not know the ultimate owner/occupant before key design and 

construction decisions are made. Under such conditions, builders chronically under-invest in 

efficiency. This persistent principal-agent barrier has been addressed through policy action in 

building codes and beyond code programs. 

Mandatory building energy codes. State and local governments commonly use 

building energy codes to address the principal-agent problem. Building energy codes 

primarily address the thermal performance of the building envelope—insulation and 

window efficiency; air leakage through walls, ceilings, and window and door assemblies; 

and in some cases leakage from heating and cooling ducts. Codes are limited in most 

cases to the “envelope” for two reasons: 

– The envelope involves the most permanent design and construction decisions, 

because these components can last indefinitely and can be difficult or expensive to 

rebuild after construction. 

– Federal law pre-empts states from regulating most heating, cooling, hot water, and 

other appliances. These devices can be replaced somewhat more quickly (on a 10- 

to 30-year cycle), typically do not require expensive construction modifications to 

replace, and are addressed through the appliance standards discussed above. 

The majority of states have relatively recent building codes in force for both residential 

and commercial buildings.3

 Beyond the basic question of whether an energy code exists, 

the relative stringency of the code can also reflect the principal-agent problem. Because 

builders participate in the code development and adoption process, and are influential 

economic interests in most states and localities, they can influence the stringency of 

building energy codes. Stringency is an important issue in developing, adopting, and 

implementing energy codes. Other important issues include builder training, 

enforcement, and verification. 

Voluntary, beyond-code programs. Regardless of the presence of building codes, 

programs such as ENERGY STAR that establish performance levels more stringent than 

codes also work to address the principal-agent barrier while providing greater energy 

savings. ENERGY STAR encourages buyers to evaluate the energy performance of a 

building before buying and influences builders to upgrade the energy performance of 

their buildings. Programs such as ENERGY STAR are being used to establish a market 

for efficient, beyond-code buildings and are used in energy efficiency programs to offer 

more efficient buildings and procure energy savings by the utility. These programs 

include verification protocols and require the development of a building rating 

infrastructure to ensure that the buildings are constructed to more efficient levels. 

Significant market penetration of buildings built to these voluntary standards is being 

achieved; for example, ENERGY STAR new homes represent more than 20 percent of 

new home starts in many metropolitan areas (EPA, 2008). 

5.1.3 Existing Facility Improvements 

Beyond the lost-opportunity markets driven by equipment replacement and new construction 

cycles, a vast set of energy efficiency measures can be installed as elective retrofits and 

improvements. Many lighting measures, insulation, air leakage reduction, controls, and other 

technologies can be cost-effective to install without waiting for a time-of-replacement point. 

These retrofit measures hold significant energy savings potential, but they also present 
National Action Plan for Energy Efficiency 5-5

challenges in reaching customers and engaging trade allies because there are typically few 

existing market channels through which to promote these options. Getting retrofits to occur 

takes much more active marketing—and sometimes additional administrative effort to 

coordinate marketing and delivery—than do measures that can be driven through existing 

market channels. 

Home weatherization measures provide an example of the challenges faced by programs aimed 

at retrofit measures. With much of the U.S. housing stock built before the current era of high 

energy prices, environmental concerns, and advances in building design, there are enormous 

opportunities for improving home insulation, windows, air leakage, duct leakage, lighting, and 

other features. However, reaching homeowners one by one and customizing measures and 

installation techniques to each home can be challenging. These challenges stem in part from 

the diverse and complex nature of home improvement markets, the overriding effect of which is 

to increase transaction-cost barriers. 

Key programs operating in U.S. markets today that seek to overcome these barriers include: 

Low-income weatherization. The federal Weatherization Assistance Program, which is 

administered through state and local organizations, currently serves about 100,000 

homes annually with a range of retrofit measures, from air and duct leakage reduction to 

insulation and equipment replacement. 

Comprehensive home retrofits. Some states and utilities offer packages of retrofit 

services to residential customers. One of the leading national umbrella efforts for these 

programs is Home Performance with ENERGY STAR. This program takes a 

comprehensive approach to home retrofits, using advanced diagnostics and treatment 

methods, qualified home professionals, and quality assurance protocols to deliver 

energy efficiency solutions that reduce energy bills while improving comfort. This 

package has been designed to tackle the specific barriers found to be present in the 

residential home improvement marketplace. 

Commercial building retrofits. Several states and utilities offer direct installation, recommissioning, and customized retrofit programs for non-residential customers. 

ENERGY STAR Buildings is a commonly used umbrella approach for many of these 

efforts; it uses a benchmarking approach to determine relative energy performance. 

Many building owners then pursue a range of retrofits and operating practices to improve 

the building’s performance to a level that can be recognized by the ENERGY STAR 

program. 

Industrial assistance. Federal and state programs support a variety of industrial 

technical assistance. EPA’s Industrial ENERGY STAR programs, DOE’s Office of 

Industrial Technologies programs, and numerous state industrial programs offer 

analytical tools, recognition, technical assistance, and in some cases financial 

incentives. 

In the 2009–2011 timeframe, these and other efficiency programs for homes and businesses 

are receiving substantial federal grant support through the American Recovery and 

Reinvestment Act (ARRA). Additional information on ARRA funding and technical assistance is 

available on the Action Plan Web site.4
5-6 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

5.1.4 Standardized Benchmarking of Building Energy Use 

Assessing the energy performance of new and existing buildings through standardized protocols 

and benchmarks is a growing practice in the United States and countries around the world. This 

practice addresses the transaction-cost barrier in the purchase, resale, and leasing of building 

space. It also works as an information management system to help building owners/managers 

understand and ultimately reduce their energy use and costs. This benchmarking and 

monitoring practice requires collection of data both from the energy provider and the building 

owner to generate ratings that reflect key building characteristics as well as actual energy use. 

An important issue affecting the cost and wider use of benchmarking is the standardization of 

energy billing data, so customers can access utility bills and other data, download the data into 

software tools, and assess energy performance on a common basis in various states and utility 

service areas around the country. The Action Plan has developed guidance on standardizing 

access to energy data; the Utility Best Practices Guidance for Providing Business Customers 

With Energy Use and Cost Data report (National Action Plan for Energy Efficiency, 2008d). 

5.1.5 Education and Outreach 

A number of organizations provide education and outreach at the national, state, and local 

levels to address informational barriers and help consumers adopt energy-saving practices that 

complement energy-efficient products and buildings. 

5.1.6 Government Lead-by-Example 

Federal, state, and local governments command significant building square footage and product 

procurement efforts across the country, and they can help drive the marketplace toward efficient 

products and practices. State and local governments in particular spend about $12 billion 

annually on energy bills across more than 16 billion square feet of building space (EPA, 2006). 

A number of leading states and local governments are pursuing energy efficiency practices 

throughout their facilities through executive and/or legislative requirements. 

5.1.7 Administered Electricity and Natural Gas Efficiency Programs 

Utility sector efficiency programs seek to address barriers in markets for new construction and 

existing building improvements, as well as equipment replacement programs. They dovetail with 

many of the policies outlined above, though they generally are not connected to mandatory 

regulatory policies like building codes and appliance standards. By providing a range of market 

transformation efforts, technical assistance services, and financial incentives, utility- and stateadministered energy efficiency programs can achieve significant impacts across all major enduse markets. 

These voluntary programs are needed to realize the maximum achievable potential for energy 

efficiency resources. Building energy codes tend to be limited in stringency compared with an 

economically optimal level of performance, and they also tend to contain simplified, prescriptive 

measures addressing each component separately. Voluntary programs can be based on 

measures designed to realize a greater fraction of the economic potential in new construction. 

They can play a similar role in equipment-replacement markets, where minimum standards 

typically capture only part of the cost-effective efficiency potential. Voluntary programs can also 

cover a wider range of products, services, and design and operating practices, beyond those 

typically affected by building codes and appliance standards, adding to their ability to realize a 

greater portion of efficiency potential. 
National Action Plan for Energy Efficiency 5-7

5.2 Addressing Regulatory Barriers 

Effectively addressing regulatory barriers is fundamental to achieving all cost-effective energy 

efficiency investment. In the electricity and natural gas sectors, these barriers involve 

ratemaking and resource planning issues. While not the primary focus of this paper, policies 

affecting clean distributed generation technologies such as combined heat and power can also 

inhibit efficiency investment. These include utility interconnection policies and tariff policies 

regarding standby and supplemental power. 

As with efficiency programs, the Action Plan has dedicated substantial effort to exploring the 

policy issues involved in redirecting utility regulatory policies to encourage utility and customer 

investment in energy efficiency. These issues include: 

Integrating energy efficiency into resource planning 

Providing sufficient, timely, and stable recovery of program costs 

Addressing utility revenue stability given the reduction in throughput from efficiency 

Providing incentives to shareholders for measured and verified savings 

Designing rates to maximize customer incentives for energy efficiency 

These issues are discussed in the Action Plan report (National Action Plan for Energy 

Efficiency, 2006), with substantial detail provided in additional Action Plan guides and papers. 

These documents can be found at www.epa.gov/eeactionplan. 

5.3 Action Plan Vision for 2025 and Related Resources 

The Vision for 2025 provides a comprehensive framework for overcoming a state’s market and 

regulatory barriers to investment in cost-effective energy efficiency. It establishes a long-term 

goal of achieving all cost-effective energy efficiency by 2025, defines 10 specific implementation 

goals, and outlines additional policy and program steps for each goal. The Vision framework is 

based on over two decades of program and policy experience. Implementation of these goals by 

2015 to 2020 would put the country on the path to achieving all cost-effective energy efficiency. 

Substantial progress has been made, as can be seen by reviewing the policies in place across 

the 50 states (see Table 5-2). Much more progress is needed to establish the necessary policy 

foundation for energy efficiency, though, as Table 5-2 shows. 
5-8 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

Table 5-2. State Progress in Meeting the National Action Plan for Energy 

Efficiency Vision 

States Having Adopted Policy Step as of 

December 31, 2007 

Electricity Services Natural Gas Services Implementation Goal and Key Steps 

Completely Partially Completely 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.a

TBD TBD TBD TBD 

Goal Two: Developing Processes to Align Utility and Other Program Administrator 

Incentives Such That Efficiency and Supply Resources Are on a Level Playing Field 

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.a 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 
National Action Plan for Energy Efficiency 5-9

States Having Adopted Policy Step as of 

December 31, 2007 

Electricity Services Natural Gas Services Implementation Goal and Key Steps 

Completely Partially Completely Partially 

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 

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.a 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 
5-10 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

States Having Adopted Policy Step as of 

December 31, 2007 

Electricity Services Natural Gas Services Implementation Goal and Key Steps 

Completely Partially Completely Partially 

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.a

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 b b

25 Coordinated energy efficiency and 

demand response programs 

established by customer class to 

target energy efficiency for 

enhanced value to customers.a

TBD TBD b b

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 b b

28 Timelines developed for the 

integration of advanced 

technologies.a

TBD TBD TBD TBD 

See Appendix D of the Vision for 2025 report (National Action Plan for Energy Efficiency, 2008a) for 

additional information on how these numbers have been determined. 

a

 See Appendix D of the Vision for 2025 report (National Action Plan for Energy Efficiency, 2008a) for 

discussion of why progress on this policy step is not currently measured. 

b

 Steps 24, 25, and 27 do not apply to natural gas. 

TBD = to be determined. 

In addition, the Action Plan provides a comprehensive suite of resources and technical 

assistance to help states, utilities, and other stakeholders realize the Vision. Table 5-3 lists 

guides and papers that are available to assist in implementing each of the Vision goals. 
National Action Plan for Energy Efficiency 5-11

Table 5-3. National Action Plan for Energy Efficiency Tools by Implementation 

Goals 

Goal Detailed Action Plan Tools and Resources 

Goal One: Establishing Cost-Effective 

Energy Efficiency as a High-Priority 

Resource 

 Guide to Resource Planning With Efficiency 

 Guide for Conducting Potential Studies 

 Communications Kit 

Goal Two: Developing Processes to Align 

Utility and Other Program Administrator 

Incentives Such That Efficiency and Supply 

Resources Are on a Level Playing Field 

 Aligning Utility Incentives With Investment in 

Energy Efficiency Paper 

Goal Three: Establishing CostEffectiveness Tests  Understanding Cost-Effectiveness of Energy 

Efficiency Programs Paper 

 Guide to Resource Planning With Efficiency 

 Guide for Conducting Potential Studies 

Goal Four: Establishing Evaluation, 

Measurement, and Verification Mechanisms

 Model Energy Efficiency Program Impact 

Evaluation Guide 

Goal Five: Establishing Effective Energy 

Efficiency Delivery Mechanisms 

 Rapid Deployment Energy Efficiency Toolkit 

 Consumer Perspectives on Delivery of Energy 

Efficiency Brief 

 Customer Incentives Through Programs Brief 

(Under Development) 

Goal Six: Developing State Policies to 

Ensure Robust Energy Efficiency Practices 

 Building Codes for Energy Efficiency Fact 

Sheet 

 Efficiency Program Interactions With Codes 

Paper 

 State and Local Lead-by-Example Guide 

Goal Seven: Aligning Customer Pricing and 

Incentives to Encourage Investment in 

Energy Efficiency 

 Customer Incentives Through Rate Design 

Brief 

Goal Eight: Establishing State of the Art 

Billing Systems 

 Utility Best Practices Guidance for Providing 

Business Customers With Energy Data 

Goal Nine: Implementing State of the Art 

Efficiency Information Sharing and Delivery 

Systems 

 Paper on Coordination of Demand Response 

and Energy Efficiency (Under Development) 

Goal Ten: Implementing Advanced 

Technologies 

 Most Energy-Efficient Economy Project (in 

Process) 

Related State, Regional, and National 

Policies

 Energy Efficiency as a Low-Cost Resource for 

Achieving Carbon Emissions Reductions 

Paper 
5-12 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

5.4 Summary of Findings 

The information presented above can be summarized as follows: 

Market and regulatory barriers can and are being reduced through targeted energy 

efficiency policies and programs, with the effect of increasing energy efficiency 

investment, reducing greenhouse gas emissions, and ultimately reducing the overall 

economic cost of climate policies. 

– Policies and programs are available to address a range of identified market barriers 

to energy efficiency across the key end-use sectors and to address the prominent 

market transactions where these barriers limit investment. 

– Policies and approaches are available to address a range of regulatory barriers that 

exist primarily at the state level. 

Substantial progress has been made at the state level to advance energy efficiency 

policies and programs to address barriers, but more work needs to be done. 

Additional work is necessary to better understand the extent to which individual policies 

and programs can address the existing barriers and help access the available, costeffective energy efficiency potential. 

The Vision for 2025 and supporting tools and resources offer important policy 

frameworks for state and local policy-makers and assistance for capturing low-cost 

energy efficiency resources. 

5.5 Notes 

1

 For more information, see the Appliance Standards Awareness Project at 

<http://www.standardsasap.org>. 

2

 Based on data reported at <http://www.epa.gov/cleanenergy/energy-programs/state-andlocal/efficiency_actions.html>. 

3

 Energy building codes have been adopted by 37 states for commercial buildings and 34 states for 

residential buildings. See <http://www.epa.gov/cleanenergy/energy-programs/state-andlocal/efficiency_actions.html> for more information. 

4

 See the Action Plan’s Rapid Deployment Energy Efficiency Toolkit at 

<http://www.epa.gov/cleanenergy/energy-resources/ee_toolkit.html>. 
National Action Plan for Energy Efficiency 6-1

6: How Climate Policies and Programs Leverage 

Energy Efficiency 

This chapter reviews and summarizes the existing state and regional climate policies that 

leverage energy efficiency. It also provides a summary of key findings. 

A review of climate-related policies and programs across the United States finds that energy 

efficiency is used in two main forms: 

Within climate policy mechanisms. These policies are part of core climate policy 

mechanisms (e.g., a cap and trade program for greenhouse gases) and are used to 

encourage energy efficiency investment. An example of this is an allowance allocation 

approach whereby auction proceeds are used to fund energy efficiency programs. 

As complementary energy policies/programs. These initiatives are not directly a part 

of the regulatory system governing the core climate policy; rather, they operate in 

parallel in the energy sector, with the intent of reducing total greenhouse gas emissions 

or reducing the cost of meeting greenhouse gas reduction targets. Many of these 

policies and programs were discussed in some detail in Chapter 5. Additional policies 

include energy efficiency resource standards (EERS). 

6.1 Energy Efficiency Within Climate Policy Mechanisms 

Figure 6-1 summarizes state policies that are being implemented in support of greenhouse gas 

reduction objectives. 
6-2 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

Figure 6-1. Leveraging Energy Efficiency in State Climate Policies 

Sources: <http://epa.gov/climatechange/wycd/stateandlocalgov/state_planning.html> and 

<http://www.raponline.org/Slides/DF-RGGI_for_VLS_Parenteau_Class-10Apr09.pdf>. 

Examples of each of these policy forms are provided below. 

Regional Greenhouse Gas Initiative (RGGI). RGGI is a 10-state policy in the Northeast, 

comprising Maryland, Delaware, New Jersey, New York, Connecticut, Rhode Island, 

Massachusetts, Vermont, New Hampshire, and Maine. Since its origins in a 2003 governors’ 

agreement, RGGI has established a model regulation that establishes an electricity-sector CO2

cap and trade system. The program begins compliance in 2009, caps emissions in 2014, and 

then requires a 10 percent reduction by 2018. 

Within RGGI’s regulations, the principal means through which efficiency is promoted is the 

RGGI allowance auction policy. The model rule requires that at least 25 percent of allowances 

be auctioned, and that the proceeds be used to support energy efficiency and other carbon 

emissions reduction strategies. States have for the most part structured their RGGI 

implementation rules to require higher auction percentages, most at or near 100 percent. As 

states have worked out their allowance auction processes and the use of allowance proceeds, 

energy efficiency has been designated for specific levels of funding. For example, the 2008 

Maryland legislation establishing the state’s Strategic Energy Investment Fund designates 46 
National Action Plan for Energy Efficiency 6-3

percent of allowance proceeds for energy efficiency (Maryland General Assembly, 2008). The 

first RGGI emissions allowance auction was held on September 25, 2008, producing a clearing 

price of $3.07/ton. At that price, Maryland would garner $117 million in total funds and $54 

million for energy efficiency programs. Another 2008 Maryland bill (the EmPOWER Maryland 

Act), which sets energy savings targets for utilities, requires utilities to coordinate their efficiency 

programs with the state-run programs funded with RGGI dollars. Other RGGI states are taking 

similar approaches (Environment Northeast, 2009). 

Most of the RGGI states are also pursuing complementary energy efficiency policies, including 

building codes, appliance standards, and EERS. These policies are referenced in various RGGI 

documents, including the following statement on complementary policies in the RGGI 

Memorandum of Understanding, which all participating states have signed: 

COMPLEMENTARY ENERGY POLICIES 

Each state will maintain and, where feasible, expand energy policies to decrease 

the use of less efficient or relatively higher polluting generation while maintaining 

economic growth. These may include such measures as: end-use efficiency 

programs, demand response programs, distributed generation policies, electricity 

rate designs, appliance efficiency standards and building codes. Also, each state 

will maintain and, where feasible, expand programs that encourage development 

of non-carbon emitting electric generation and related technologies. 

EERS, which set overall energy savings targets for utility-sector efficiency programs, are in 

place in Vermont, New York, Connecticut, Maryland, and also in non-RGGI states such as 

Pennsylvania, Ohio, Illinois, Minnesota, Texas, North Carolina, and Colorado. 

California Assembly Bill 32 (AB 32) legislation and subsequent actions from the 

California Air Resources Board (CARB) and CPUC. AB 32 is the authorizing legislation for 

CARB, CPUC, and other entities to act on several fronts to reduce greenhouse gas emissions. 

Key documents to date include the Climate Change Draft Scoping Plan: A Framework for 

Change (CARB, 2008) and CPUC’s Final Opinion on Greenhouse Gas Regulatory Strategies 

under Rulemaking 06-04-009 (CPUC, 2008). 

The CARB Scoping Plan’s proposed portfolio of policies and programs is shown in Table 6-1. 

Energy efficiency policies, including transportation measures, account for more than one-third of 

total emissions reductions targeted under the plan. 
6-4 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

Table 6-1. California Air Resources Board AB 32 Compliance Plan Summary 

Recommended Reduction Measures 

Reductions 

Counted Toward 

2020 Target 

(MMT CO2e) 

Estimated Reductions Resulting From the Combination of 

Cap-and-Trade Program and Complementary Measures 146.7

California light-duty vehicle greenhouse gas standards 

 Implement Pavley standards 

 Develop Pavley II light-duty vehicle standards 

31.7 

Energy efficiency 

 Building/appliance efficiency, new programs, etc. 

 Increase CHP generation by 30,000 GWh 

 Solar water heating (AB 1470 goal) 

26.3 

Renewables portfolio standard (33% by 2020) 21.3 

Low carbon fuel standard 15 

Regional transportation-related GHG targets 5 

Vehicle efficiency measures 4.5 

Goods movement 

 Ship electrification at ports 

 System-wide efficiency improvements 

3.7 

Million solar roofs 2.1 

Medium-/heavy-duty vehicles 

 Heavy-duty vehicle greenhouse gas emission reduction 

(aerodynamic efficiency) 

 Medium- and heavy-duty vehicle hybridization 

1.4 

High-speed rail 1.0 

Industrial measures (for sources covered under cap and trade 

program) 

 Refinery measures 

 Energy efficiency and co-benefits audits 

0.3 

Additional reductions necessary to achieve the cap 34.4 

Estimated Reductions From Uncapped Sources/Sectors 27.3

High global warming potential gas measures 20.2 

Sustainable forests 5.0 

Industrial measures (for sources not covered under cap and trade 

program) 

 Oil and gas extraction and transmission 

1.1 

Recycling and waste (landfill methane capture) 1.0 

Total Reductions Counted Towards 2020 Target 174
National Action Plan for Energy Efficiency 6-5

Other Recommended Measures 

Estimated 2020 

Reductions 

(MMT CO2e) 

State government operations 1-2 

Local government operations TBD 

Green buildings 26 

Recycling and waste (other measures) 9 

Water sector measures 4.8 

Methane capture at large dairies 1.0 

Source: CARB, 2008. 

MMT CO2e = million metric tons of carbon dioxide equivalents. 

The CPUC decision (CPUC, 2008) defers a number of specific issues, including the use of 

allowance auction proceeds, so it is not known to what extent this revenue stream will be 

applied to support energy efficiency-related efforts. However, this statement in CPUC’s recent 

greenhouse gas decision indicates an intention to devote some portion of allowance allocation 

revenues to energy efficiency: 

We recommend that ARB require that all allowance auction revenues be used for 

purposes related to Assembly Bill (AB) 32, including the support of investments 

in renewables, energy efficiency, new energy technology, infrastructure, 

customer bill relief, and other similar programs. (p. 289) 

Western Climate Initiative (WCI). This multi-state effort began in February 2007 when the 

governors of Arizona, California, New Mexico, Oregon, Montana, Utah, and Washington, plus 

four Canadian provinces, issued the Design Recommendations for the WCI Regional Cap-andTrade Program in September 2008 (WCI, 2008). One statement in the Design 

Recommendations identifies energy efficiency as a targeted use for allowance revenues: 

The WCI Partner jurisdictions agree that a portion of the value represented by 

each WCI Partner jurisdiction’s allowance budget (for example, through setasides of allowances, a distribution of revenues from the auctioning of 

allowances, or other means) will be dedicated to one or more of the following 

public purposes which are expected to provide benefits region wide: 

– Energy efficiency and renewable energy incentives and achievement; 

– Research, development, demonstrations, and deployment (RDD&D) with 

particular reference to carbon capture & sequestration (CCS); renewable 

energy generation, transmission and storage; and energy efficiency; 

– Promoting emissions reductions and sequestration in agriculture, forestry and 

other uncapped sources; and 

– Human and natural community adaption to climate change impacts. 

(p. 7) 
6-6 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

The WCI Design Recommendations also support the use of complementary energy policies 

such as energy efficiency: 

Complementary Policies: The analysis demonstrated that energy efficiency 

programs, vehicle emissions standards, and programs to reduce vehicle miles 

traveled (VMT) are important for achieving emissions reductions. The manner in 

which these policies are represented in ENERGY 2020 results in overall savings 

being realized from these policies. Resources from the cap-and-trade program 

(e.g., from auctioning of emissions allowances) can fund these complementary 

programs. (p. 59) 

Midwest Greenhouse Gas Reduction Accord. The Midwestern Governors Association issued 

the Energy Security and Climate Stewardship Platform for the Midwest and the Midwestern 

Greenhouse Gas Reduction Accord in 2007 (MGA, 2007a, 2007b). The Accord commits the 

member states to developing a carbon cap and trade system, in concert with the more specific, 

near-term policy initiatives laid out in the more detailed Platform. The Platform document makes 

the following five recommendations for energy efficiency policies: 

1. Establish quantifiable goals for energy efficiency. Policy-makers need to 

determine what level of efficiency improvement is economically achievable for 

their jurisdiction to meet the regional goal. If each state identified targets for 

megawatt-hours and therms saved, it would be possible to determine what 

role each jurisdiction can play in achieving the region’s overall 2 percent 

energy efficiency objective. Progress should be continually measured and 

evaluated, and adjustments should be made as necessary. 

2. Undertake state assessments that quantify the amount of energy 

efficiency that would cost less on a unit cost basis than new generation.

This analysis should include a cost-benefit analysis of pursuing this amount 

of efficiency. 

3. Require retail energy providers to make energy efficiency a priority.

Resource plans should begin with all cost-effective energy efficiency goals, 

targets and strategies before reliance upon any additional supply. 

4. Remove financial disincentives and enable investment recovery for 

energy efficiency program costs. Regulatory practices and rate designs 

sometimes result in barriers to efficiency investments because efficiency 

reduces potential energy sales. Changes should be implemented to remove 

financial disincentives and provide appropriate incentives for prudent 

expenditures on energy efficiency. 

5. Strengthen building codes and appliance standards and requisite 

training, quality assurance and enforcement. The experience of other 

countries and regions in developing progressive codes and standards should 

be a model for this region. For example, leading states have updated state 

building codes to keep up with technological advances in energy efficiency. 

(p. 7) 

A review of these climate policy documents shows that all three have committed to developing a 

cap-and-trade system and made specific commitments to developing energy efficiency as a 

resource to support their overall goals. 
National Action Plan for Energy Efficiency 6-7

6.2 Energy Efficiency as a Complementary Policy 

Many states are pursuing energy efficiency policies and programs outside of climate policy 

mechanisms due to the many benefits that energy efficiency provides, including low-cost CO2

emissions reductions. Table 6-2 shows how many states have adopted common energy 

efficiency policies. 

Table 6-2. States With Common Energy Efficiency Policies in Place as of October 

2008 

Policy Number of States 

State appliance standards 16 

Building codes 43 

EERS 21 

Public benefit funds for energy efficiency 22 

Source: <http://www.epa.gov/cleanenergy/energy-programs/state-and-local/efficiency_actions.html>. 

6.3 Summary of Findings 

Many states and local governments have recognized the important role of energy efficiency in 

their greenhouse gas reduction strategies and have developed targeted policies to capture the 

available low-cost energy efficiency opportunities. These policies include energy efficiency 

strategies that complement carbon policies, as well as the use of revenue from the carbon 

policy to fund energy efficiency programs. 

National Action Plan for Energy Efficiency 7-1

7: Findings and Recommendations 

This paper’s findings regarding energy efficiency as a resource for reducing CO2 emissions are 

summarized as follows: 

Energy efficiency is a relatively large and low-cost resource available to states and other 

entities to meet future energy needs. Approximately 20 percent of end-use energy 

consumption can be saved at costs less than half that of new generation. This can 

reduce energy bills as well as the total cost of energy resources. 

Current investment levels in energy efficiency are substantially below those needed to 

capture the achievable, low-cost potential of this resource. 

Efficiency is a relatively large and low-cost carbon abatement resource. Given its low 

cost relative to new supply of energy, if tapped in substantial quantities beyond current 

investment levels, efficiency can help achieve carbon emissions reduction goals and 

lower the costs of meeting these goals—whether or not specific climate policies are in 

effect. 

Energy prices alone are not likely to accelerate efficiency investment at the rate needed 

to tap the majority of efficiency’s economic potential. While more analysis is needed to 

quantify the specific impacts of barriers, it is generally clear that: 

– Market and regulatory barriers are large and persistent. They include principal-agent 

barriers, information-cost or transaction-cost barriers, and regulatory policy barriers 

in the areas of resource planning and utility ratemaking. 

– The price elasticity of energy consumption in many residential and commercial 

markets is relatively weak due to countervailing elasticity effects. Relying solely on 

price elasticity to drive efficiency investment is unlikely to capture a significant portion 

of cost-effective efficiency potential. 

Targeted energy efficiency policies and programs are needed to reduce market and 

regulatory barriers. These policies and programs can help increase energy efficiency 

investment, reduce greenhouse gas emissions, and reduce the overall economic cost of 

climate policies. 

– Policies and programs are available to address a range of identified market barriers 

to energy efficiency across the key economic sectors and to address the prominent 

market transactions where barriers limit investment. 

– Policies and approaches are available to address a range of regulatory barriers that 

exist primarily at the state level. 

Many states and local governments have recognized the important role of energy 

efficiency in their greenhouse gas reduction strategies and have developed targeted 

policies to capture the available low-cost energy efficiency opportunities. These policies 

include energy efficiency strategies that complement carbon policies as well as the use 

of revenue from the carbon policy to fund energy efficiency programs. 
7-2 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

The Action Plan’s Vision for 2025 and supporting tools and resources offer important 

policy frameworks and assistance for capturing low-cost energy efficiency resources. 

Based on these findings, key recommendations are: 

Energy efficiency should be a cornerstone of energy and/or climate policies at all levels 

of government, based on its proven status as a cost-effective option for reducing CO2

emissions and reducing the cost of climate policies. 

Energy efficiency policies and programs should be pursued expeditiously, with an 

emphasis on establishing the necessary policy foundation for capturing all cost-effective 

energy efficiency as outlined in the Vision for 2025. 
National Action Plan for Energy Efficiency A-1

Appendix A: National Action Plan for Energy 

Efficiency Leadership Group 

Co-Chairs 

Marsha Smith 

Commissioner, Idaho Public 

Utilities Commission 

Past President, National 

Association of Regulatory Utility 

Commissioners 

James E. Rogers 

Chairman, President, and 

C.E.O. 

Duke Energy 

Leadership Group 

Barry Abramson 

Senior Vice President 

Servidyne Systems, LLC 

Tracy Babbidge 

Director, Air Planning 

Connecticut Department of 

Environmental Protection 

Angela Beehler 

Senior Director, Energy 

Regulation/Legislation 

Wal-Mart Stores, Inc. 

Bruce Braine 

Vice President, Strategic Policy 

Analysis 

American Electric Power 

Jeff Burks 

Director of Environmental 

Sustainability 

PNM Resources 

Sandra Hochstetter Byrd 

Vice President, Strategic Affairs 

Arkansas Electric Cooperative 

Corporation 

Kateri Callahan 

President 

Alliance to Save Energy 

Jorge Carrasco 

Superintendent 

Seattle City Light 

Lonnie Carter 

President and C.E.O. 

Santee Cooper 

Sheryl Carter 

Co-Director, Energy Program 

Natural Resources Defense 

Council 

Gary Connett 

Director of Environmental 

Stewardship and Member 

Services 

Great River Energy 

Larry Downes 

Chairman and C.E.O. 

New Jersey Natural Gas (New 

Jersey Resources Corporation) 

Roger Duncan 

General Manager 

Austin Energy 

Neal Elliott 

Associate Director for Research 

American Council for an 

Energy-Efficient Economy 

Angelo Esposito 

Senior Vice President, Energy 

Services and Technology 

New York Power Authority 

Jeanne Fox 

President 

New Jersey Board of Public 

Utilities 

Philip Giudice 

Commissioner 

Massachusetts Department of 

Energy Resources 

Dian Grueneich 

Commissioner 

California Public Utilities 

Commission 

Blair Hamilton 

Policy Director 

Vermont Energy Investment 

Corporation 

Stephen Harper 

Global Director, Environment 

and Energy Policy 

Intel Corporation 

Maureen Harris 

Commissioner 

New York State Public Service 

Commission 

Mary Healey 

Consumer Counsel for the State 

of Connecticut 

Connecticut Consumer Counsel 

Joe Hoagland 

Vice President, Energy 

Efficiency and Demand 

Response 

Tennessee Valley Authority 

Val Jensen 

Vice President, Marketing and 

Environmental Programs 

ComEd (Exelon Corporation) 

Mary Kenkel 

Consultant, Alliance One 

Duke Energy 
A-2 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

Ruth Kiselewich 

Director, Demand Side 

Management Programs 

Baltimore Gas and Electric 

Company 

Harris McDowell 

Senator 

Delaware General Assembly 

Ed Melendreras 

Vice President, Sales and 

Marketing 

Entergy Corporation 

Janine Migden-Ostrander 

Consumers’ Counsel 

Office of the Ohio Consumers’ 

Counsel 

Michael Moehn 

Vice President, Corporate 

Planning 

Ameren 

Fred Moore 

Director, Manufacturing and 

Technology, Energy 

The Dow Chemical Company 

Richard Morgan 

Commissioner 

District of Columbia Public 

Service Commission 

Diane Munns 

Vice President, Regulatory 

Relations and Energy Efficiency 

MidAmerican Energy Company 

Clay Nesler 

Vice President, Global Energy 

and Sustainability 

Johnson Controls, Inc. 

Brock Nicholson 

Deputy Director, Division of Air 

Quality 

North Carolina Department of 

Environment and Natural 

Resources 

Jed Nosal 

Chief, Office of Ratepayer 

Advocacy 

Massachusetts Office of 

Attorney General Martha 

Coakley 

Pat Oshie 

Commissioner 

Washington Utilities and 

Transportation Commission 

John Perkins 

Consumer Advocate 

Iowa Office of Consumer 

Advocate 

Doug Petitt 

Vice President, Marketing and 

Conservation 

Vectren Corporation 

Phyllis Reha 

Commissioner 

Minnesota Public Utilities 

Commission 

Roland Risser 

Director, Customer Energy 

Efficiency 

Pacific Gas and Electric 

Gene Rodrigues 

Director, Energy Efficiency 

Southern California Edison 

Wayne Rosa 

Energy and Maintenance 

Manager 

Food Lion, LLC 

Art Rosenfeld 

Commissioner 

California Energy Commission 

Jan Schori 

General Manager 

Sacramento Municipal Utility 

District 

Ted Schultz 

Vice President, Energy 

Efficiency 

Duke Energy 

Larry Shirley 

Division Director 

North Carolina Energy Office 

Paul Sotkiewicz 

Senior Economist, Market 

Services Division 

PJM Interconnection 

Jim Spiers 

Senior Manager, Planning, 

Rates, and Member Services 

Tri-State Generation and 

Transmission Association, Inc. 

Susan Story 

President and C.E.O. 

Gulf Power Company (Southern 

Company) 

Tim Stout 

Vice President, Energy 

Efficiency 

National Grid 

Debra Sundin 

Director, Energy Efficiency 

Marketing 

Xcel Energy 

Paul Suskie 

Chairman 

Arkansas Public Service 

Commission 

Dub Taylor 

Director 

Texas State Energy 

Conservation Office 

David Van Holde 

Energy Manager, Department of 

Natural Resources and Parks 

King County, Washington 

Brenna Walraven 

Managing Director, National 

Property Management 

USAA Realty Company 

J. Mack Wathen 

Vice President, Regulatory 

Affairs 

Pepco Holdings, Inc. 
National Action Plan for Energy Efficiency A-3

Mike Weedall 

Vice President, Energy 

Efficiency 

Bonneville Power Administration 

Michael Wehling 

Strategic Planning and 

Research 

Puget Sound Energy 

Henry Yoshimura 

Manager, Demand Response 

ISO New England, Inc. 

Dan Zaweski 

Assistant Vice President, 

Energy Efficiency and 

Distributed Generation 

Long Island Power Authority 

Observers 

Rex Boynton 

President 

North American Technician 

Excellence 

James W. (Jay) Brew 

Counsel 

Steel Manufacturers Association 

Susan Coakley 

Executive Director 

Northeast Energy Efficiency 

Partnerships 

Roger Cooper 

Executive Vice President, Policy 

and Planning 

American Gas Association 

Mark Crisson 

President and C.E.O. 

American Public Power 

Association 

Dan Delurey 

Executive Director 

Demand Response 

Coordinating Committee 

Reid Detchon 

Executive Director 

Energy Future Coalition 

Ron Edelstein 

Director, Regulatory and 

Government Relations 

Gas Technology Institute 

Claire Fulenwider 

Executive Director 

Northwest Energy Efficiency 

Alliance 

Sue Gander 

Director, Environment, Energy, 

and Natural Resources Division 

National Governors 

Association—Center for Best 

Practices 

Jeff Genzer 

General Counsel 

National Association of State 

Energy Officials 

Donald Gilligan 

President 

National Association of Energy 

Service Companies 

Chuck Gray 

Executive Director 

National Association of 

Regulatory Utility 

Commissioners 

Katherine Hamilton 

President 

GridWise Alliance 

William Hederman 

Member, IEEE-USA Energy 

Policy Committee 

Institute of Electrical and 

Electronics Engineers 

Marc Hoffman 

Executive Director 

Consortium for Energy 

Efficiency 

John Holt 

Senior Manager of Generation 

and Fuel 

National Rural Electric 

Cooperative Association 

Eric Hsieh 

Manager of Government 

Relations 

National Electrical 

Manufacturers Association 

Lisa Jacobson 

Executive Director 

Business Council for 

Sustainable Energy 

Wendy Jaehn 

Executive Director 

Midwest Energy Efficiency 

Alliance 

Meg Matt 

President and C.E.O. 

Association of Energy Services 

Professionals 

Joseph Mattingly 

Vice President, Secretary and 

General Counsel 

Gas Appliance Manufacturers 

Association 

Kate Offringa 

President and C.E.O. 

North American Insulation 

Manufacturers Association 

Ellen Petrill 

Director, Public/Private 

Partnerships 

Electric Power Research 

Institute 

Christie Rewey 

Senior Policy Specialist 

National Conference of State 

Legislatures 

Steven Schiller 

Board Director 

Efficiency Valuation 

Organization 

Jerry Schwartz 

Senior Director 

American Forest and Paper 

Association 
A-4 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

Andrew Spahn 

Executive Director 

National Council on Electricity 

Policy 

Ben Taube 

Executive Director 

Southeast Energy Efficiency 

Alliance 

Rick Tempchin 

Interim Executive Director, 

Retail Energy Services 

Edison Electric Institute 

Mark Wolfe 

Executive Director 

Energy Programs Consortium 

Lisa Wood 

Executive Director 

Institute for Electric Efficiency 

Facilitators 

U.S. Department of Energy 

U.S. Environmental Protection 

Agency 
National Action Plan for Energy Efficiency B-1

Appendix B: Glossary 

Achievable potential: The result of estimating how much market barriers and program uptake 

limits will reduce the economic potential. 

Allowances: Allowances represent the amount of a pollutant that a source is permitted to emit 

during a specified time in the future under a cap and trade program. Allowances are often 

confused with credits earned in the context of project-based or offset programs, in which 

sources trade with other facilities to attain compliance with a conventional regulatory 

requirement. Cap and trade program basics are discussed at the following EPA Web site: 

<http://www.epa.gov/airmarkets/cap-trade/index.html>. 

Avoided costs: The forecasted economic “benefits” of energy savings. These are the costs that 

would have been incurred if the energy efficiency had not been put in place. 

Baseline: Conditions, including energy consumption and related emissions, that would have 

occurred without implementation of the subject project or program. Baseline conditions are 

sometimes referred to as “business-as-usual” conditions. Baselines are defined as either 

project-specific baselines or performance standard baselines. 

Carbon dioxide reduction potential studies: Assessments of the impacts that energy 

efficiency could have on reducing U.S. carbon dioxide emissions. 

Cost-effectiveness: A measure of the relevant economic effects resulting from the 

implementation of an energy efficiency measure. If the benefits outweigh the cost, the measure 

is said to be cost-effective. 

Cost recovery: Recovery of the direct costs associated with utility program administration 

(including evaluation), implementation, and incentives to program participants. 

Demand: The time rate of energy flow. Demand usually refers to electric power measured in 

kW (equals kWh/h) but can also refer to natural gas, usually as Btu/hr, kBtu/hr, therms/day, etc. 

Discount rate: A measure of the time value of money. The choice of discount rate can have a 

large impact on the cost-effectiveness results for energy efficiency. As each cost-effectiveness 

test compares the net present value of costs and benefits for a given stakeholder perspective, 

its computation requires a discount rate assumption. 

Economic potential: The result of reducing the technical potential by applying costeffectiveness and program eligibility criteria. 

End-use: A category of equipment or service that consumes energy (e.g., lighting, refrigeration, 

heating, process heat). 
B-2 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

Energy efficiency: The use of less energy to provide the same or an improved level of service 

to the energy consumer in an economically efficient way. “Energy conservation” is a term that 

has also been used, but it has the connotation of doing without in order to save energy rather 

than using less energy to perform the same or better function. 

Energy efficiency measure: Installation of equipment, subsystems, or systems, or modification 

of equipment, subsystems, systems, or operations on the customer side of the meter, for the 

purpose of reducing energy and/or demand (and, hence, energy and/or demand costs) at a 

comparable level of service. 

Energy resource plans: Assessments of the energy resources that are available to meet future 

energy needs for a specific geographic area or energy system. These plans can draw from 

energy efficiency potential studies, but apply them in a more focused and constrained 

framework. 

Evaluation: The performance of studies and activities aimed at determining the effects of a 

program; any of a wide range of assessment activities associated with understanding or 

documenting program performance, assessing program or program-related markets and market 

operations; any of a wide range of evaluative efforts including assessing program-induced 

changes in energy efficiency markets, levels of demand or energy savings, and program costeffectiveness. 

Fixed costs: Expenses incurred by the utility that do not change in proportion to the volume of 

sales within a relevant time period. 

Integrated resource planning: A public planning process and framework within which the 

costs and benefits of both demand- and supply-side resources are evaluated to develop the 

least-total-cost mix of utility resource options. In many states, integrated resource planning 

includes a means for considering environmental damages caused by electricity 

supply/transmission and identifying cost-effective energy efficiency and renewable energy 

alternatives. 

Leakage: In the context of avoided emissions, emissions changes resulting from a project or 

program not captured by the primary effect (typically the small, unintended emissions 

consequences). 

Levelized cost: A constant value or payment that, if applied in each year of the analysis, would 

result in a net present value equivalent to the actual values or payments which change (usually 

increase) each year. Often used to represent, on a consistent basis, the cost of energy saved by 

various efficiency measures with different useful lives. 

Load shapes: Representations such as graphs, tables, and databases that describe energy 

consumption rates as a function of another variable such as time or outdoor air temperature. 

Lost-opportunity: Refers to an efficiency measure or efficiency program that seeks to 

encourage the selection of higher-efficiency equipment or building practices than would typically 

be chosen at the time of a purchase or design decision. 
National Action Plan for Energy Efficiency B-3

Marginal cost: The sum that has to be paid for the next increment of product or service. The 

marginal cost of electricity is the price to be paid for kilowatt-hours above and beyond those 

supplied by presently available generating capacity. 

Market barriers: Market conditions that limit or constrain economic efficiency and, thus, result 

in less than economically optimal societal outcomes. 

Market transformation: A reduction in market barriers resulting from a market intervention, as 

evidenced by a set of market effects, that lasts after the intervention has been withdrawn, 

reduced, or changed. 

Monitoring: Gathering of relevant measurement data, including but not limited to energy 

consumption data, over time to evaluate equipment or system performance. 

Non-participant: Any consumer who was eligible but did not participate in the subject efficiency 

program, in a given program year. Each evaluation plan should define “non-participant” as it 

applies to a specific evaluation. 

Participant: A consumer who received a service offered through the subject efficiency program, 

in a given program year. In this definition, the “service” can be a wide variety of services, 

including financial rebates, technical assistance, product installations, training, energy efficiency 

information or other services, items, or conditions. Each evaluation plan should define 

“participant” as it applies to the specific evaluation. 

Portfolio: Either (1) a collection of similar programs addressing the same market, technology, 

or mechanisms or (2) the set of all programs conducted by one organization. 

Potential study: A study conducted to assess market baselines and energy efficiency savings 

potentials for different technologies and customer markets. Potential is typically defined in terms 

of technical, economic, achievable, and program potential. 

Price elasticity: Refers to “price elasticity of demand,” which is the extent to which a change in 

the price of a product or service will affect the quantity demanded. In the context of energy 

efficiency, it refers to the effects of changes in energy prices on energy consumption. 

Principal-agent barrier: A condition in which one entity (the agent) makes energy efficiency 

investment decisions, and another entity (the principal) pays the energy operating costs that 

flow from that decision. 

Program: A group of projects, with similar characteristics and installed in similar applications. 

Program administrators: Typically procure various types of energy efficiency services from 

contractors (e.g., consultants, vendors, engineering firms, architects, academic institutions, 

community-based organizations), as part of managing, implementing, and evaluating their 

portfolio of energy efficiency programs. Program administrators in many states are the utilities; 

in some states they are state energy agencies or third parties. 
B-4 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

Project: An activity or course of action involving one or more energy efficiency measures, at a 

single facility or site. 

Regulatory barriers: Barriers created by adding constraints or prescriptions to market 

structures or practices. In the power sector, regulatory barriers to efficiency revolve around 

utility resource planning and ratemaking policies. 

Resource planning study: Typically uses many of the same data sources and analytical 

techniques applied in potential studies. The principal difference is that a resource planning 

analysis uses timeframes, economic assumptions, and other factors specific to the utility service 

area. 

Retrofit: Refers to an efficiency measure or efficiency program that seeks to encourage the 

replacement of functional equipment before the end of its operating life with higher efficiency 

units (also called “early-retirement”) or the installation of additional controls, equipment, or 

materials in existing facilities for purposes of reducing energy consumption (e.g., increased 

insulation, lighting occupancy controls, economizer ventilation systems). 

Technical potential: An estimate of what energy and capacity savings would be achieved if all 

technically feasible efficiency measures were implemented for all customers. The technical 

potential is adjusted by applying a series of screens of real-world constraints. 

Transaction-cost barrier: Refers to the condition in which energy users, even if they have the 

ability to choose an energy-efficient product or system, are unwilling to invest the time, effort, 

and analysis to make an economically optimal decision. Economists sometimes use terms like 

“information-cost” or “search cost” for this type of barrier. 
National Action Plan for Energy Efficiency C-1

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C-2 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

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National Action Plan for Energy Efficiency C-3

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C-4 Energy Efficiency as a Low-Cost Resource for Achieving Carbon Emissions Reductions 

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National Action Plan for Energy Efficiency C-5

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Funding and printing for this report was provided by the U.S. Department of Energy and U.S. Environmental 

Protection Agency in their capacity as co-sponsors for the National Action Plan for Energy Effi ciency.