The Energy Savings and Industrial Competitiveness Act: S. 385 and H.R. 1443
Released: 2017-08-04T00:00:00

Introduction and the Role of Energy Efficiency

The Energy Savings and Industrial Competitiveness Act, S. 385 / H.R. 1443 , would introduce energy-efficiency policy reforms that according to the sponsors would "strengthen the economy and reduce pollution." The bill addresses energy-efficiency policies for buildings, industry, and federal agencies, among other provisions. According to the U.S. Energy Information Administration, the building and industrial sectors collectively consume 72% of all U.S. primary energy. The residential and commercial buildings sector accounts for 40% of all U.S. primary energy consumption, and the industrial sector accounts for 32%. Increased adoption of energy-efficiency technologies by these sectors could potentially realize significant energy savings and reduce emissions to the environment. The U.S. Department of Energy (DOE) estimates that building energy use could be reduced by more than 20% through implementation of technologies that are known to be cost-effective. Implementation of existing, cost-effective efficiency technologies in the industrial sector could reduce energy consumption by 14%-22% according to the National Academies. Challenges to energy efficiency include market forces that do not incentivize investment in energy efficiency, a lack of information or awareness of energy saving opportunities and investment returns, and policy approaches that reward selling energy and discourage investment in energy efficiency. The bill proposes a national strategy to increase energy efficiency in the residential, commercial, federal, and industrial sectors; to reduce barriers to private-sector investment; to increase adoption of existing technologies; to increase energy independence; to improve economic competitiveness; and to reduce environmental impacts.

This report describes the development of the Energy Savings and Industrial Competitiveness Act, S. 385 / H.R. 1443 ; reviews select provisions in the bill; summarizes studies on the costs and benefits of the bill; and discusses potential issues for the 115 th Congress. It also identifies differences that may be of interest to policymakers between S. 385 / H.R. 1443 and relevant energy-efficiency sections of Title I of S. 1460 , Energy and Natural Resources Act of 2017, which was introduced on June 28, 2017.

Bill Development

Senator Portman introduced S. 385 on February 15, 2017, and Representative McKinley introduced an identical bill, H.R. 1443 , on March 9, 2017. Both bills build upon congressional action from the 112 th , 113 th , and 114 th Congresses. The first version of the bill, introduced as S. 1000 in the 112 th Congress, was reported by the Senate Committee on Energy and Natural Resources but received no further action. In the 113 th Congress, the bill was reintroduced in multiple forms including S. 2262 , which contained additional provisions. The provisions in S. 2262 were split into two Senate bills in the 114 th Congress, S. 535 / H.R. 1802 and S. 720 , which was related but not identical to H.R. 2177 . S. 535 became law ( P.L. 114-11 ) and addressed the following five subjects:

Energy efficiency in federal and commercial leased buildings, Separate spaces (leased or otherwise occupied spaces within a building) with high-performance energy-efficiency measures, Tenant Star Program, Grid-enabled water heaters, and Energy information for commercial buildings (e.g., benchmarking and disclosure requirements for federal agencies and the creation and maintenance of a database of public energy-related information for commercial and multifamily buildings).

In the 114 th Congress, the remaining provisions of S. 2262 , including model building codes, information coordination for energy-efficient school buildings, and federal-building energy-efficiency requirements, were incorporated into S. 720 and later into a broader energy and natural resources bill, S. 2012 . A conference committee was unable to reach an agreement on S. 2012 . The evolution of the provisions is shown in Appendix A . The provisions in S. 385 and H.R. 1443 align closely with those in S. 720 (114 th Congress). A voluntary verification provision for air conditioning, furnace, boiler, heat pump, and water heater products present in S. 720 (114 th Congress) is not included in S. 385 / H.R. 1443 .

Provisions in the Bills

S. 385 (and the identical H.R. 1443 ) is divided into five titles. Title I addresses building energy efficiency and workforce training. Title II has provisions on industrial efficiency and competitiveness. Title III focuses on federal agencies and energy efficiency. Title IV has regulatory provisions for the Energy Star program and federal buildings. Title V addresses budgetary effects and would require advance appropriations. Table 1 summarizes the major provisions of the bill. A discussion of selected provisions follows.

Title I

Title I includes subsections on building energy codes, workforce training, and school buildings. For building energy codes, DOE currently submits proposals to a third-party, consensus-based codes or standards development organization to make changes to the existing model code, conducts analysis of the potential energy-efficiency improvements of model energy codes, and determines whether the revised code would improve energy efficiency (see text box for additional information). Section 101, on greater energy efficiency in building codes, would direct DOE to support the model-code development process and to establish targets for aggregate energy savings. These targets would be established and revised by DOE through a rulemaking process. The bill would also direct DOE to encourage and support states, Indian tribes, and local governments to implement and adopt the model building energy codes; for the current status of state building energy codes, see Appendix B .

Subtitle C would direct DOE to act as the lead federal agency to coordinate and disseminate information on existing federal programs that could assist energy efficiency, renewable energy, and energy retrofit projects for schools.

Title II

Title II has four subsections: manufacturing energy efficiency, a new "Supply Star" program to incentivize more efficient supply chains, a rebate program for energy-efficient product systems with an electric motor and electronic control, and a rebate program for energy-efficient transformers. Several of the subsections address barriers to industrial energy efficiency identified by DOE in a 2015 report to Congress. Provisions for Supply Star and for the rebate programs address the economic and financial barriers to energy-efficiency adoption identified by DOE, and the subsection related to manufacturing energy efficiency helps to address identified informational barriers to energy-efficiency technology adoption by providing technical expertise and assistance to manufacturers.

Title III

Title III addresses energy efficiency for federal agencies and has sections targeting efficiency improvements for information technologies and data centers. It also directs the Secretary of Housing and Urban Development (HUD) to establish a demonstration program at multifamily residential units for budget-neutral, performance-based agreements for energy and water conservation improvements.

Title IV

Title IV also has provisions related to federal agencies and energy efficiency. Specifically, this title contains subtitles related to the Energy Star program, federal green buildings, and energy performance of federal buildings. The current version of this title differs from proposals in prior Congresses. One change in the current version from previous versions is the addition of language supporting sustainably sourced materials. In Title IV, Subtitle B—Federal Green Buildings, Section 411(3)(E), the bill adds the following language to the basis for certifying high performance buildings:

[A] finding that, for all credits addressing the sourcing of grown, harvested, or mined materials, the system rewards the use of products that have obtained certifications of responsible sourcing, such as certifications provided by the Sustainable Forestry Initiative, the Forest Stewardship Council, the American Tree Farm System, or the Programme for the Endorsement of Forest Certification.

In contrast to rewarding responsibly sourced products, S. 720 (114 th Congress) stated that the "high-performance green federal buildings" certification system should "not discriminate against" the use of such responsibly sourced domestic products.

This change from not discriminating against selection to rewarding certain characteristics is also reflected in Section 422 of S. 385 / H.R. 1443 , which states that the criteria should be based on relevant technical data, including an evaluation of the health, safety, and environmental risks and impacts across the product lifecycle. Criteria used to support the selection of building products or materials should also give preference to performance standards versus prescriptive measures, and reward continual improvements in lifecycle management. In S. 720 , this provision would have specified which selection criteria should not be included—namely those that are prohibitive, discriminatory, or disfavoring based on technically inadequate information on risk. Both current and previous versions of this section would give preference to criteria that are performance-based versus prescriptive measures.

Legislative Action

Senate

S. 385 —The Energy Savings and Industrial Competitiveness Act—was introduced on February 15, 2017. On March 30, 2017, the Senate Energy and Natural Resources Committee approved the bill without amendment as part of an advancement of 65 bills en bloc and by voice vote. The committee reported it on May 10, 2017, accompanied by S.Rept. 115-60 .

Senator Collins introduced a related bill, S. 383 , Streamlining Energy Efficiency for Schools Act, on February 15, 2017. It is identical to Title I, Subtitle C, of S. 385 . The House passed a bill, H.R. 627 , with the same title as and provisions similar to S. 383 , on June 12, 2017. (See description below under House action.)

On June 28, 2017, Senators Murkowski and Cantwell (chair and ranking member, respectively, of the Senate Energy and Natural Resources Committee) introduced S. 1460 , the Energy and Natural Resources Act of 2017. The next day, the bill was read a second time and placed on the Senate calendar. The bill has two divisions, Division A—Energy, and Division B—Natural Resources. Division A, Title I, focuses on energy efficiency. Most topics addressed by S. 385 / H.R. 1443 described in Table 1 are found within Title I of S. 1460 , although the provisions are not identical. S. 1460 would not establish a voluntary Supply Star program for industrial efficiency. There are several potentially important differences within the comparable provisions of S. 385 / H.R. 1443 and S. 1460 . These issues are discussed further in " Possible Issues for Congress ."

House

H.R. 1443 —The Energy Savings and Industrial Competitiveness Act—was introduced on March 9, 2017, and referred to the following committees: House Energy and Commerce; House Budget; House Financial Services; House Science, Space, and Technology; House Transportation and Infrastructure; and House Oversight and Government Reform. On March 10, 2017, the House Energy and Commerce Committee referred it to the Subcommittee on Energy, and the House Transportation and Infrastructure Committee referred it to the Subcommittee on Economic Development, Public Buildings and Emergency Management. On April 25, 2017, the House Science, Space, and Technology Committee referred it to the Subcommittee on Energy.

On January 24, 2017, H.R. 627 —the Streamlining Energy Efficiency for Schools Act of 2017 —was introduced in the House and referred to the House Energy and Commerce Committee. Similar to S. 383 , this bill would amend the Energy Policy and Conservation Act (EPCA) for energy retrofitting assistance for schools (42 U.S.C. Chapter 77, Subchapter III, Part E). The language in the two bills differs; H.R. 627 would direct the establishment of a clearinghouse of information, while S. 383 , in addition to an informational website, would require technical assistance, a recognition process for schools, and a report to Congress regarding implementation. H.R. 627 was reported by the House Committee on Energy and Commerce without amendment on June 12, 2017, and the House suspended the rules and passed the bill on the same day.

On May 4, 2017, H.R. 2361 —Energy Savings and Building Efficiency Act of 2017—was introduced in the House and was referred to the House Committee on Energy and Commerce. The following day, it was referred to the Subcommittee on Energy. Similar to H.R. 1443 , the bill also would promote energy savings in residential and commercial buildings and industry, but it has several key differences in language. Specifically, H.R. 2361 would

limit the time period for estimating energy savings to a 10-year time frame for simple payback, not require certification for states or tribes that do not update a model building energy code, and create voluntary aggregate energy savings targets instead of mandatory targets for the baseline model building energy codes.

The potential issues related to these differences are discussed further in " Possible Issues for Congress ."

Potential Costs and Benefits

The Congressional Budget Office (CBO) estimated costs for S. 385 . Cost estimates from CBO are limited to federal outlays and revenues that would change if the legislation were enacted and fully implemented, and do not extend to the microeconomic costs and benefits that would be incurred by industry or consumers. According to CBO, S. 385 would increase direct spending by $17 million for 2017-2027 and cost $198 million over five years to implement, assuming that appropriations would be consistent with the authorizing legislation. Increases in direct spending would arise from provisions that direct federal agencies that guarantee mortgages to take into account energy-efficiency improvements when evaluating a borrower's ability to repay a mortgage. CBO expects that the requirement, if enacted, would increase the total volume of mortgages insured by federal entities by less than 0.1%.

As the requirements for the proposed federal energy-efficiency goals are largely consistent with existing statute and administrative policy, CBO does not anticipate them to significantly add to federal spending. Additionally, federal agency spending on renewable energy certificates (RECs) would decrease, as current requirements to reduce the consumption of energy generated from fossil fuels would be modified. These findings are consistent with the analysis done by CBO for S. 720 (114 th Congress).

S. 385 would impose an intergovernmental mandate by requiring states and tribal governments to certify to the DOE whether or not they have updated residential and commercial building codes to meet the latest building energy-efficiency standards. CBO estimated the cost of this intergovernmental mandate, as defined in the Unfunded Mandates Reform Act of 1995 (UMRA). CBO determined that the cost of the mandate would be well below the threshold established in UMRA for 2017. Additionally, S. 385 would authorize funding and technical assistance to state, local, and tribal governments to implement the certification requirement.

In 2013, the American Council for an Energy-Efficient Economy (ACEEE) evaluated similar energy-efficiency legislation benefits (113 th Congress, S. 1392 ). ACEEE's analysis determined that the bill and selected amendments would create jobs, save consumers money, reduce energy use, and avoid greenhouse gas emissions. ACEEE found that the majority of potential energy savings in the bill could be realized through implementation of building energy codes. The provisions in S. 1392 responsible for the largest energy savings, according to ACEEE, are identical (with a minor conforming change for authorization of appropriations) with the provisions in S. 385 / H.R. 1443 . However, comparing the results for energy or cost savings estimates by ACEEE from S. 1392 would overestimate the benefits of the current bills within a 2020 or 2030 time frame, as the ACEEE analysis quantified potential energy savings beginning in the year 2015. Further, the analysis included benefits of provisions previously enacted in P.L. 114-11 .

Possible Issues for Congress

Support and opposition to S. 385 / H.R. 1443 are likely to parallel those for S. 720 (114 th Congress) and its predecessor, S. 2262 (113 th Congress). Several companies and organizations have stated their support for S. 385 / H.R. 1443 . These organizations generally support the promotion of energy-efficient technologies; efforts to promote job creation in the energy-efficiency sector; measures to save energy in buildings, industry, and the government; and financing assistance for home energy-efficiency improvements. The ACEEE states that the bill "would help consumers, workers, businesses, states, the economy, and the environment." The American Chemistry Council (ACC) also supports the bill, particularly the section on enhanced energy-efficiency underwriting (§423). According to ACC, the energy underwriting provisions would recognize the benefits of energy-efficient technologies and reduce annual mortgage expenses and utility bills for consumers.

The bills may face opposition from groups focused on market-based policy. For example, the Heritage Foundation and its affiliated advocacy group, Heritage Action, opposed S. 2262 in the 113 th Congress. They stated that the bill "would burden taxpayers and consumers alike," and that "removing mandates and subsidies removes impediments to market efficiency." Instead of creating efficiency standards or providing incentives as included in Title I, these groups support providing information through voluntary programs. The Heritage Foundation has previously stated support for improving federal energy efficiency through energy savings performance contracts so long as there is sufficient oversight, transparency, and cost-savings verification. While S. 385 / H.R. 1443 has provisions addressing these issues, it is yet unknown if the provisions will draw support for the legislation.

Other groups have raised concerns about specific provisions in the bill. While the American Institute of Architects (AIA) supports the consensus-based model building energy codes in Title I, AIA opposes language in Title III of the current bill that would repeal the part of the Energy Independence and Security Act 2007 ( P.L. 110-140 ) that requires new and renovated federal buildings to phase out fossil fuel power by 2030.

Title I, Subtitle A—Building Energy Codes—has several provisions that have previously raised opposition. It directs DOE to establish energy savings targets in the code development process and to consider the lifecycle cost-effectiveness of model building energy codes for those targets. Opponents to targets state that greater transparency in DOE's technical support of code development is needed to avoid concerns of an "inappropriate advocacy role." Furthermore, they state that DOE's role should be to serve as "technical advisor" and not push for specific goals, products, or technologies. DOE has a role in certification of energy-efficiency codes. Under 42 U.S.C. 6833, states are required to certify to DOE that they have compared a new building energy code standard to their current code. For residential building energy codes, the certification includes a determination as to whether it is appropriate to revise the state's current code to meet or exceed the revised code. For commercial building energy codes, the certification confirms that the state's building code has been updated appropriately.

Regarding cost-effectiveness, some prefer the simple payback approach limited to 10 years, as is proposed within H.R. 2361 . Proponents consider such an approach effective in communicating the payback for consumers in easily understood terms and meeting consumers' expectations for short-term returns on investment. Supporters of H.R. 2361 contend that the current model code process requires costly products and materials, which could be corrected by requiring a shorter payback period. Opponents of a simple payback limited to 10 years state that the approach neglects benefits that occur after the period, ignores the benefits beyond the initial investor, does not account for mortgage financing, and thus does not accurately measure the full benefits and overall profitability.

The lifetimes of major building components generally exceed a 10-year time frame and often exceed the time span of 15-year and 30-year mortgages. The average residential building lifetime in the United States is 61 years, and typical building component (e.g., insulation, windows, roof) lifetimes exceed 10 years. For example, the warranty period for windows is often 20 to 25 years depending upon the type and can last throughout the building lifetime with maintenance. Products with shorter lifetimes such as water heaters or refrigeration equipment are not typically included when determining building energy code cost-effectiveness, as they have separate energy-efficiency standards.

Congress might consider whether to prioritize affordability for the first building owner relative to realizing larger building energy savings that may benefit multiple owners or occupants throughout the lifetime of a building.

Possible Issues to Consider in S. 1460

S. 1460 is a comprehensive energy and natural resources bill. Title I of the bill addresses energy efficiency, and many of the sections within Title I align with the contents of S. 385 / H.R. 1443 (see table in Appendix A for similar provisions). It contains several differences that may be of interest to Congress.

Many of the differences between S. 385 / H.R. 1443 and S. 1460 address building energy codes, and Congress might consider how these differences may affect the energy-efficiency goals of the legislation. While S. 385 / H.R. 1443 use the term "model building energy code," S. 1460 uses the term "voluntary building energy code," which is currently in Section 303 of the Energy Conservation and Protection Act (ECPA) (42 U.S.C. 6832). S. 1460 would further emphasize the voluntary aspect of the building energy codes by adding the following to Section 304 of ECPA (42 U.S.C. 6833):

(a) VOLUNTARY BUILDING ENERGY CODE.—Nothing in this section or section 307 makes a voluntary building energy code established under this section or an updated voluntary building energy code under section 307 binding on a State, local government, or Indian tribe as a matter of Federal law.

S. 1460 also emphasizes that the energy-savings targets that DOE would establish are "consensus-based," which is consistent with the definition of "model building energy code" used in S. 385 / H.R. 1443 .

S. 385 / H.R. 1443 and S. 1460 expand the current certification requirements for states and Indian tribes regarding reviewing and updating building energy codes. Under current law, states are required to certify that they have compared new model building energy codes with their existing building energy codes within two years of a determination by DOE that the updated version of a model building energy code is appropriate. While the model building energy codes are different for residential and commercial buildings, both bills set consistent certification requirements for residential and commercial building energy code reviews and updates. Both bills also require states and Indian tribes to certify whether they have achieved compliance with the applicable building energy code standard. However, S. 1460 does not include language requiring repeat certifications for those who have certified progress toward achieving compliance but not full compliance. For those states that do not achieve compliance, federal support is available per both bills. However, S. 385 / H.R. 1443 authorize support for "code adoption and compliance activities" while S. 1460 authorizes support for "technical assistance."

Federal incentive funding is available in both bills; however, there is a change in word choice in S. 1460 to deemphasize "enforcement." In S. 385 / H.R. 1443 , incentive funding could be used to improve and verify compliance and to train "state, tribal, and local building code officials to implement and enforce the codes." S. 385 / H.R. 1443 would also permit states to "share grants under this subsection with local governments that implement and enforce the codes." In S. 1460 , the enforcement language is replaced such that incentive funding could be used to improve and verify compliance and train "state, local, and tribal building code officials, or other entities identified by the Secretary." Language permitting grant sharing in S. 1460 is simplified to "states may share grants under the subsection with local governments."

S. 1460 does not contain the following energy-efficiency provisions present in S. 385 / H.R. 1443 :

A requirement for DOE to establish stretch codes and advanced standards, which refer to building energy codes or standards that are adopted by state, tribal, or local governments that exceed the expected energy-efficiency performance of a building energy code target ahead of schedule by three to six years; Studies on code procedures that consider the lifetime of energy-efficiency measures in trade-offs and performance calculations; S. 1460 instead would call for studies on code procedures that adopt energy-efficiency measures that are "technologically feasible and economically justified"; Energy-efficient targets that are "technologically feasible and life-cycle cost effective"; S. 1460 instead would direct DOE to establish targets that are "technologically feasible and economically justified"; and A paragraph that calls for economic considerations for achieving proposed building energy-efficiency targets that would include potential costs and savings for consumers and building owners and include a return on investment analysis.

S. 1460 uses the term "economically justified." At the end of the proposed language for Section 307 of ECPA (42 U.S.C. 6836), this term is expanded to explain that DOE shall "determine whether the benefits of the building energy code exceed its burdens," considering the impact on manufacturers and building owners, estimated savings in operating costs, total projected amount of energy or water savings, any reduction or increase of the utility or the performance of the buildings, the need for national energy and water conservation, and other relevant facts.

S. 385 / H.R. 1443 , H.R. 2361 , and S. 1460 present three approaches to the consideration of the costs and benefits of energy-efficiency improvements to building energy codes. S. 385 / H.R. 1443 would direct DOE to support building energy codes that consider building energy savings over the lifetime of a building. H.R. 2361 would direct DOE to support building energy codes that consider the initial affordability for the building owner. Congress might consider whether the use of the term "economically justified" in the energy-efficiency provisions of S. 1460 presents a middle path that would direct DOE to consider building energy codes that balance both the lifetime energy savings and the initial affordability of a building.

Appendix A. Evolution of Provisions

The sections in S. 385 / H.R. 1443 can be traced back to congressional action on a sequence of bills that were considered in the 113 th and 114 th Congresses. Table A-1 shows the evolution of those provisions. The relevant sections within S. 1460 that pertain to efficiency are also included in the table for comparison.

Appendix B. Status of State Building Energy Codes

Building energy codes are adopted by states, Indian tribes, and local governments in the United States. DOE tracks the adoption of building energy codes; the status of commercial and residential energy code adoption at the state level is presented in Figure B-1 and Figure B-2 .