Roadmap for Incorporating Energy 

Efficiency/Renewable Energy

Policies and Programs into State and Tribal 

Implementation Plans

Appendix D: Understanding State Energy Efficiency 

and Renewable Energy Policies and Programs
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EPA-456/D-12-001e

July 2012

Roadmap for Incorporating Energy Efficiency/Renewable Energy

Policies and Programs into State and Tribal Implementation Plans

Appendix D: Understanding State Energy Efficiency and Renewable Energy Policies and 

Programs

By:

U.S. Environmental Protection Agency

Office of Air Quality Planning and Standards

Outreach and Information Division

Research Triangle Park, North Carolina

U.S. Environmental Protection Agency

Office of Air Quality Planning and Standards

Outreach and Information Division

Research Triangle Park, North Carolina
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ACKNOWLEDGMENTS

We would like to acknowledge substantial contributions from members of an inter-office EPA 

team that included the Office of Atmospheric Programs, the Office of Policy Analysis and 

Review, the Office of General Counsel and Regions 1 and 6. This document also reflects 

comments received from a number of stakeholders, including state and local air quality 

agencies.
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Contents

SECTION D.1: INTRODUCTION ..................................................................................................................................D-4

SECTION D.2: OVERVIEW OF STATE RENEWABLE ENERGY POLICIES........................................................................D-4

Renewable Portfolio Standard Policy Overview ....................................................................................................D-4

Incorporating Renewable Portfolio Standards Policies in State Implementation Plans........................................D-5

SECTION D.3: OVERVIEW OF STATE ENERGY EFFICIENCY POLICIES..........................................................................D-6

Overview................................................................................................................................................................D-6

Evaluation, Measurement and Verification...........................................................................................................D-7

Incorporating Energy Efficiency Policies and Programs in State Implementation Plans .......................................D-7

SECTION D.4: OVERLAPPING ENERGY EFFICIENCY/RENEWABLE ENERGY APPLICATIONS........................................D-8

Overview................................................................................................................................................................D-8

Combined Heat and Power....................................................................................................................................D-8

Incorporating Combined Heat and Power Policies and Programs in State Implementation Plans.......................D-9

SECTION D.5: EXAMPLES OF STATE EE/RE POLICIES AND PROGRAMS.....................................................................D-9

Connecticut..........................................................................................................................................................D-10

North Carolina .....................................................................................................................................................D-10

Mississippi............................................................................................................................................................D-10

SECTION D.6: HOW STATE ENERGY EFFICIENCY/RENEWABLE ENERGY POLICIES AND PROGRAMS ARE 

ADMINISTERED........................................................................................................................................................D-10

SECTION D.7: WHERE TO GO FOR MORE INFORMATION.......................................................................................D-11

REFERENCES.............................................................................................................................................................D-12
D-4

SECTION D.1: INTRODUCTION

States have adopted and implemented a wide range of policies aimed at increasing the quantity 

of energy efficiency and renewable energy (EE/RE) resources. These policies have been 

implemented for many reasons including energy security, resource diversity, economic 

development, reducing exposure to volatile fuel prices, and improving air and water quality and 

public health. This appendix provides a general description of common EE and RE policies, and 

provides key questions for government officials to consider when evaluating whether it makes 

sense for state, tribal or local agencies to account for the future impacts of EE/RE policies in a 

State Implementation Plan/Tribal Implementation (SIP/TIP). (Appendix K provides information 

on states that addressed EE/RE policies and programs in their SIPs for the 1997 8-hour ozone 

National Ambient Air Quality Standards (NAAQS) and states that are considering incorporating 

EE/RE programs and policies in their SIPs in the future.)

In general, RE policies support such technologies as wind, solar, biomass, and hydro power,

among others. Energy efficiency policies increase the adoption of technologies that reduce 

energy demand at the user site, such as high efficiency lighting or heating, ventilating, and air 

conditioning systems. However, certain applications like Combined Heat and Power (CHP) may 

be eligible under either policy depending on the state. For example, the Connecticut considers 

CHP as a RE technology under its renewable portfolio standard (RPS), while New York relies on

EE funds to directly support CHP projects.

SECTION D.2: OVERVIEW OF STATE RENEWABLE ENERGY POLICIES

Renewable Portfolio Standard Policy Overview

The RE policy highlighted in this appendix is the state renewable portfolio standard (RPS), which

generally places an obligation on electricity providers in a state to derive a specified percentage 

of their electricity sales from renewable energy. States may have other RE policies, including 

surcharges on customer electricity bills that fund RE projects, financial and tax incentives that

encourage businesses and residents to install RE projects on their sites, and tax incentives that 

attract RE businesses to a state. Renewable portfolio standards are emphasized here because, 

when implemented, the RE policy impacts the operation of large numbers of power plants and 

can potentially decrease emissions from that sector in a particular state or power pool.1

Renewable portfolio standards are typically overseen and enforced by public service 

commissions. (For more information on RPSs and other state RE policies, see EPA’s Guide to 

Action (Chapter 5) and other resources highlighted in section D.6 of this appendix.) As of this 

writing, 29 states have some form of a RPS on the books.

2

Seven others have voluntary RE

goals. However, there are significant differences between state policy designs. For example, 

the Massachusetts has very aggressive RPS requirements. Its policy requires that 15 percent of 

the state’s electricity demand come from Class I renewable resources (e.g., wind, solar, hydro, 

 

1

A power pool is an association of two or more interconnected electric systems having an agreement to 

coordinate operations and planning for improved reliability and efficiencies.

2

For more information, go to: http://www.dsireusa.org/. 
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landfill gas) by 2020, and the requirement increases 1 percent per year thereafter. The 

Massachusetts policy allows RPS obligations to be satisfied by imports from other states and 

power pools. 

State RPS policies can differ in key respects:

The quantity of RE that utilities must procure as a percentage of the total annual 

electricity sales

The definition of what energy sources qualify as renewable

Exemptions for retail providers (covered entities) 

Whether EE and/or CHP can qualify for RPS

The geographic location where the RE facilities need to be located

Vintage restrictions to determine the eligibility of facilities (e.g., hydro facilities that 

existed prior to the RPS being enacted)

Penalties that utilities must pay if they do not meet the RPS

Mechanisms for tracking certificate generation and compliance with targets

Size, ramp-up, and timetable of the targets

Existence and design of cost containment mechanisms

Incorporating Renewable Portfolio Standards Policies in State 

Implementation Plans

In order to incorporate an RPS in a SIP, the state needs to understand the details of its RPS, and 

its impacts on the operations and emissions of fossil fuel fired power plants that affect its state. 

This can be illustrated using the basic example of an RPS that leads to the construction of RE

facilities such as wind farms. Since technologies have not yet developed to store significant 

quantities of electricity, when a wind plant is generating electricity, a local fossil plant will then 

be backed off, producing emission benefits. The location of the fossil fuel generation that is 

“backed off” is more important than where the wind generation is located. However, it will be 

easier to demonstrate localized emission benefits if a state’s RPS requires that RE be produced 

locally (within a state or power pool); if the state allows RE to be imported from far away (such 

as across the country), the local emissions benefit becomes harder to prove.

Jurisdictions interested in incorporating RPS policies in SIPs should note that the Energy

Information Administration’s Annual Energy Outlook (AEO)3already factors most “on-thebooks” state RPS programs into its reference case energy forecast. For example, the AEO 2010 

includes state RPS policies which were in place as of September 2009. As a result, state 

emission forecasts that use EPA’s version of the Integrated Planning Model (IPM)4(which uses 

the same state RPS assumptions as the AEO) will already have state RPS policies reflected in the 

forecast. As a result, state and other agencies using EPA’s version of IPM should not do 

additional work to include the RPS in their SIPs since that could result in double counting. 

 

3

For more information, go to: http://www.eia.gov/forecasts/aeo/. 

4

For more information, go to: http://www.epa.gov/airmarkt/progsregs/epa-ipm/index.html.
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If there are instances where RPS targets are not met, many states provide an “off ramp,” an

alternative compliance mechanism or payment to the state by the non-compliant party. These 

funds are typically reinvested in RE efforts within a state to support increased compliance in the 

future. Importantly, if states consistently fall short of their RPS targets, they can alter the 

baseline discussed above, which could result in a material impact on emissions and air quality. 

SECTION D.3: OVERVIEW OF STATE ENERGY EFFICIENCY POLICIES

Overview

For purposes of this manual, EE policies refer to a range of laws, regulations, and public utility 

commission (PUC) orders aimed at reducing energy demand through the use of more energy 

efficient equipment, technologies, and practices. These policies can be funded through 

ratepayer surcharges, federal funds (e.g., American Recovery and Reinvestment Act5), state 

general funds, proceeds from pollution auctions such as the Regional Greenhouse Gas 

Initiative6and/or any combination of the above. Examples of EE policies include:

Minimum efficiency requirements for new homes and buildings (building energy codes) 

or appliances (appliance standards).

Requirements for utilities (or other program administrators) to deliver a specified 

amount of energy savings by developing EE programs to increase market adoption of EE 

technologies and practices (i.e., energy efficiency resource standards (EERS), also known 

as Energy Efficiency Portfolio Standards (EEPS)). 

o Some states have incorporated EERS to function alongside or as part of their RPS. 

Specified funding levels collected via ratepayer electric bills or other sources and

dedicated to implementing EE programs (e.g., public benefits funds, air pollution 

allowance auction revenue). 

In addition to the EE policies described above, a number of important regulatory mechanisms 

(e.g., utility incentive structures, innovative rate designs, and smart grid investments) can help 

achieve a state’s overall EE goals. However, these approaches are less relevant for the 

purposes of this guidance, either because their impacts are accounted for in the policies already 

described above or because their impacts are especially difficult to quantify. 

Federal, state and local governments have authority over EE policies. For example, building 

energy code policies are typically developed at the federal level, adopted by states, and 

enforced by localities. Almost all states have some form of electric-sector EE programs. Most of 

them are funded through ratepayer surcharges, block grants to the states from the U.S. 

Department of Energy or with proceeds from auctions such as RGGI. The money collected from 

these surcharges is then reinvested, under the supervision of a state PUC, in a series of 

programs approved by each state to achieve the stated policy goals of reducing energy 

consumption. An example of this type of program is providing subsidies for the purchase of 

 

5

For more information, go to: http://www.recovery.gov/Pages/default.aspx. 

6

For more information, go to: http://www.rggi.org/. 
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more energy efficient equipment. These programs may be administered by utility officials, 

independent third party energy authorities, and/or state energy officials.

Similar to RPS discussed above, EE policies vary by state. Differences include:

Level of funding

Stability of funding year to year

Types of programs, sectors, and end-uses targeted

Evaluation, Measurement and Verification (EM&V) techniques and energy savings 

calculations

Energy savings goals for the programs

Stringency of codes and standards

Degree of enforceability

Evaluation, Measurement and Verification

In order to appropriately estimate the energy savings from these programs, a state must have 

infrastructure in place to support evaluation, measurement and verification (EM&V) efforts. A 

rigorous and credible EM&V strategy can provide environmental regulators with a degree of 

certainty that savings claimed by the EE policies are actually being achieved. A key objective of 

evaluation is documenting compliance with regulatory requirements. Many EE evaluations are 

oriented toward developing retrospective estimates of energy savings attributable to a 

program, in a manner that is defensible in regulatory proceedings conducted to ensure that 

public funds are properly and effectively spent. However, the role of evaluation can go beyond 

simply documenting savings to actually improving programs and providing a basis for future 

savings estimates. If applied concurrently with program implementation, evaluations can 

provide information in real time to allow for as-needed course corrections. In summary, 

evaluation ensures that EE savings are “real” and provides important data for use by air 

regulators. 

For more information on EM&V, see the National Action Plan for Energy Efficiency’s “Model 

Energy Efficiency Program Impact Evaluation Guide.”7 Additional information on state EE

policies, see EPA’s Guide to Action (Chapter 4)8and the other resources highlighted in section 

D.7 of this appendix.

Incorporating Energy Efficiency Policies and Programs in State 

Implementation Plans

In order to consider EE policies and programs in a SIP, states need to understand how the 

operations and emissions affect local and upwind fossil fuel fired power plants. At its most 

basic, when energy efficiency decreases electricity consumption by end-use customers, there is 

an equivalent decrease in electricity generation. This change in generation can, in turn, result 

in a decrease in power plant emissions.

 

7

For more information, go to: http://www.epa.gov/cleanenergy/documents/suca/evaluation_guide.pdf. 

8

For more information, go to: http://epa.gov/statelocalclimate/resources/action-guide.html. 
D-8

Once a state has estimates of energy savings, those savings need to be evaluated against the 

operational characteristics of the power pool in which they are implemented. Often times, 

energy savings reported from EE programs are given in total megawatt hours (MWh) per year, 

without respect to the time of year or time of day in which those savings were realized. 

Because emissions from electricity generation fluctuate over the course of a day, a month or a 

year, it is possible to generate more accurate estimates of emissions reductions by correlating 

the timing of energy savings with the characteristics of power plants operating on the margin at 

that time. For instance, the emissions and generation profile of power plants running on hot 

summer days may be different from the profile of plants running on a cool fall day. 

The effort involved in matching energy savings with power-plant dispatch at a particular time is 

different than a similar analysis of RPS impacts. This is because RE sold into a power pool is 

tracked and metered every hour of the day, whereas efficiency savings are estimated using 

EM&V techniques. (Refer to Appendix I for more details on emission quantification methods).

SECTION D.4: OVERLAPPING ENERGY EFFICIENCY/RENEWABLE ENERGY 

APPLICATIONS

Overview

There are a number of applications that, depending on circumstance, can be addressed either 

under EE programs, RE standards, or both. Predominant among these is combined heat and 

power (CHP). For purposes of this discussion, CHP is the simultaneous production of heat and 

electricity from one fuel source. While a typical power plant does not reuse most of the heat it 

generates, a CHP facility will have a need for that heat. Thus, the total efficiency for a CHP 

plant can be over 60 percent while a typical power plant has an overall efficiency level of 

around 30 percent. This efficiency increase can result in significantly lower air emissions 

needed to produce an equivalent amount of usable energy from a CHP facility than would 

otherwise be produced by a separate boiler and power plant. CHP, by its inherent operation, 

functions as a supply-side energy efficiency measure.

Combined Heat and Power

CHP can be included as an eligible resource in state RPS or EEPS (as described in D.2 and D.3 

above). Approaches include the development of a separate efficiency target or a separate tier 

devoted to EE projects, including CHP, or a separate tier for CHP itself. Many states have taken 

different approaches toward incorporating CHP into their EE/RE policies.

For example, some states have funded incentive programs for CHP and other efficiency 

measures through System Benefit Charges, which are a small surcharge on electricity rates. CHP 

incentive programs have included capital cost grants (in California and New Jersey), 

demonstration programs (New York), low interest loans (in Connecticut), investment tax credits 
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(in North Carolina) and combinations of capital grants and performance payments (in 

Massachusetts and Connecticut).9

In addition, several states, including Connecticut and Massachusetts, have rewritten air 

permitting rules to acknowledge the efficiency gains achieved from CHP by recognizing both the 

thermal and electric output of a CHP system in their output-based regulations. 

Incorporating Combined Heat and Power Policies and Programs in State 

Implementation Plans

In order to consider CHP policies in a SIP, the state needs to understand the details of its policy, 

and the impacts of CHP systems on the operations and emissions of both on-site boilers and 

fossil fuel fired power plants in that state. CHP systems can help displace conventional sources 

of heat and power generation and as a result help reduce fuel use and regional emissions which 

may be accounted for in SIPs.

As with other EE/RE policies discussed in previous sections of this appendix, it is important to 

note that emission reductions may accrue at a regional level, and not necessarily in the specific 

location of an EE/RE project. While CHP systems can reduce regional emissions due to reduced 

demand for electricity from the power plant fleet, CHP systems may also have the effect of 

marginally increasing local, on-site emissions. For example, installing a CHP system on-site 

often increases the amount of fuel that is used at the site, because additional fuel is required to 

operate the CHP system as compared to the conventional stand-alone boiler or other on-site 

thermal equipment that the CHP system displaced. The efficiency and emissions benefits come 

from the fact that the incremental fuel and emissions at the CHP site are normally less than fuel 

and emissions avoided at the central power plant to provide an equivalent amount of 

electricity.

As described in section D.3, when users are purchasing less electricity, then less electricity 

needs to be generated at the power plant, and as a result emissions are avoided. The emissions 

benefits of CHP systems can potentially be incorporated into SIPs using the same general 

methods for EE measures outlined in section D.3 above, as long as any increased CHP site 

emissions are netted out from the decreased central station emissions. A more detailed 

description of how the benefits of CHP can be calculated and incorporated into SIPs, and 

specific items to consider when accounting for CHP, can be found in Appendix I.3, Step 2, 

Estimate the Energy Savings of Energy Efficiency and CHP Policies/Programs.

SECTION D.5: EXAMPLES OF STATE EE/RE POLICIES AND PROGRAMS

This section provides a brief summary of the EE/RE policies in three states. The states featured 

are for illustrative purposes only, but are intended to show the range of policies and programs 

in place today. 

 

9

For more information on financial incentives for CHP, go to EPA’s Combined Heat and Power Partnership Funding 

Resources Database: http://www.epa.gov/chp/funding/funding.html.
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Connecticut

The Connecticut has a mature set of programs that has been mandated by the state legislature 

and receives funding. The state’s primary EE program is a ratepayer funded Public Benefit 

Program that, among other activities, provides resources to assist homeowners and businesses 

to adopt a range of energy efficient technologies and practices. In 2009, Connecticut ranked 9th

in the United States with respect to per capita EE expenditures.10 The state’s RPS program was 

started in 2000 and will reach a maximum required percentage of 27 percent by 2020, among 

the highest in the country.11

North Carolina

In 2007, North Carolina created its RE and Energy Efficiency Portfolio Standard (REEPS). Under 

the REEPS, public electric utilities in the state must obtain RE power and EE savings of 3 percent

of prior-year electricity sales in 2012, increasing to 12.5 percent in 2021. Energy efficiency is 

capped at 25 percent of the 2012-2018 targets and at 40 percent of the 2021 target. Combined 

heat and power qualifies as an EE measure under the standard. Under this program, individual 

utilities now administer EE and RE programs in North Carolina with oversight and approval from 

the North Carolina Utilities Commission. Rate-regulated utilities may recover the costs for RE

and EE programs through a Demand Side Management/Energy Efficiency rate rider.12

Mississippi

Utilities in Mississippi have historically offered few EE programs. Some do report energy 

savings and one utility company offers loans for residential customers. The Mississippi Public 

Service Commission has recently proposed expanding ratepayer funded EE programs.13 

Mississippi currently has no RPS policy. 

SECTION D.6: HOW STATE ENERGY EFFICIENCY/RENEWABLE ENERGY

POLICIES AND PROGRAMS ARE ADMINISTERED

As stated earlier, most EE and RE policies are not administered by a state department of 

environmental protection (DEP), but by PUCs, and are implemented by state energy offices, an 

electric utility, an independent third party, or some combination. However, while a state 

environmental agency may not administer or enforce these policies, their successful 

implementation may have significant environmental impacts. 

For example, an RPS that requires utilities to purchase from RE facilities within its state or air 

shed may result in fossil fired units in the same area running less frequently, which can result in 

significant air pollution benefits that are not reflected in a typical DEP permitting program for 

power plants. Therefore, it is in the interests of state environmental regulatory staff to become 

familiar with these policies and their potential environmental benefits and to reach out to the 

staffs in those organizations to stay up to date on those rules and programs.

 

10 For more information, go to: http://www.aceee.org/sites/default/files/publications/researchreports/e107.pdf. 

11 For more information, go to: http://apps1.eere.energy.gov/states/maps/renewable_portfolio_states.cfm. 

12 For more information, go to: http://www.aceee.org/sector/state-policy/north-carolina.

13 Mississippi Public Service Commission (2011).
D-11

The EPA encourages state, tribal and local agencies to focus the majority of the effort at 

incorporating EE/RE in SIPs/TIPs on EE/RE policies because states have many such policies 

already “on the books” and because policies have more potential to provide more significant 

emissions impacts. Many of the specific EE/RE programs states run for a particular year will be 

captured by accounting for the policies that fund or require them. In attempting to account for 

individual EE/RE program impacts in SIPs/TIPs, agencies should demonstrate that these 

programs are incremental to any EE/RE policies the agency is already accounting for in its 

SIP/TIP. For example, if a state is already accounting for the impacts of its EERS, it should not 

include incremental impacts for a residential compact fluorescent light bulb incentive program 

that the utilities in the state develop to help meet the EERS. 

SECTION D.7: WHERE TO GO FOR MORE INFORMATION

There are several places the reader can go for more information including:

The Database of State Incentives for Renewables and Efficiency (DSIRE) is a 

comprehensive source of information on state, local, utility and federal incentives and 

policies that promote RE and EE. Established in 1995 and funded by the U.S. 

Department of Energy, DSIRE is an ongoing project of the N.C. Solar Center and the 

Interstate Renewable Energy Council. http://www.dsireusa.org/ 

The American Council for an Energy Efficient Economy (ACEEE) is a national nonprofit 

organization dedicated to advancing and deploying EE technologies, policies, programs, 

and behavior. They provide up to date information on EE programs and policies for all 

50 states. http://www.aceee.org/sector/state-policy

EPA State Climate and Energy Program: 

http://epa.gov/statelocalclimate/state/index.html

EPA Clean Energy-Environment Guide to Action: 

http://epa.gov/statelocalclimate/resources/action-guide.html

National Action Plan for Energy Efficiency: http://www.epa.gov/cleanenergy/energyprograms/suca/resources.html

Lawrence Berkeley National Laboratory on RPS: 

http://eetd.lbl.gov/ea/ems/reports/lbnl-154e-revised.pdf

Lawrence Berkeley National Laboratory on EE: http://eetd.lbl.gov/ea/ems/reports/lbnl2258e.pdf

The Regulatory Assistance Project: www.raponline.org

EPA CHP Partnership for help accounting for the emissions benefits of CHP projects: 

http://www.epa.gov/chp/
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REFERENCES

Mississippi Public Service Commission (2011). Proposal of the Mississippi Public Service Commission to 

Possible Amend Certain Rules of Practice and Procedure. August 4, 2011. Available online at 

<http://www.insite.psc.state.ms.us/PublicInSiteWeb/cts_wv/vudirect.aspx?CASEYEAR=2010&C

ASENUM=2>
13

United States

Environmental Protection

Agency

Office of Air Quality Planning and Standards

Outreach and Information Division

Research Triangle Park, NC

Publication No. EPA-456/D-12-001e

July 2012