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CEG: America's Untapped Opportunity

By Kelly Sweitzer

An enormous efficiency opportunity exists right under our noses. Electricity, the most versatile kind of energy, is used in limitless applications, ranging from transportation to heating, communications to lighting. The backbone of modern industrial society is, and likely will remain, the use of electrical power because of the services it provides and the standard of living it delivers. Despite our reliance on electricity in the United States, concerns about emissions from coal-fired energy production and their direct contribution to global climate change have resulted in an escalating awareness of the importance of energy efficiency. However, while the benefits of efficiency are increasingly espoused, the United States has relatively low implementation rates.

“Assessing the Electric Productivity Gap and U.S. Efficiency Opportunity,” RMI’s Energy & Resources Team’s (ERT) recently published report, unveils just what is possible when efficiency measures are effectively implemented. Through their research, ERT discovered that the electric productivity (measured in dollars of gross domestic product divided by kilowatt-hours consumed) of U.S. states varies dramatically. If lower-performing states could achieve the electric productivity of the top-performing states through energy efficiency, the nation could save 1.2 million gigawatt-hours and displace more than the equivalent of 60 percent of coal-fired generation in the country. This could also mean more than $100 billion in consumer savings.

According to Natalie Mims, a Consultant with ERT “closing the electric productivity gap through energy efficiency is the largest near-term opportunity to immediately reduce electricity use and greenhouse gases and move the United States forward as a leader in the new clean energy economy.”

With enormous implications for both the environment and the economy, how could an opportunity of this magnitude remain untapped? ERT’s Closing the Efficiency Gap (CEG) research team, led by ERT Vice President, Stephen Doig, Natalie, and ERT Fellow Mathias Bell, decided to recast the problem itself and explore energy efficiency within a completely new framework—and on a much larger scale. They know that reframing the challenge is a critical step in the team’s strategy to accelerate the adoption of energy efficiency and move towards the utility of the future.

Reframing the Efficiency Problem

For years, researchers have grappled with commonly cited barriers to energy efficiency adoption that contribute to the myth that efficiency measures are either too costly or technically unfeasible. "Decoupling" has been explored by a few states as a viable solution to promoting efficiency. Decoupling is a technique for setting a utility's rates so that the amount of money the utility earns is not bound to the amount of electricity it sells. This can ensure that a utility's revenues will not suffer, and can actually benefit, from implementing efficiency measures. A number of states have used decoupling in efforts to align their utilities’ financial interests with the delivery of cost-effective energy efficiency programs.

While the project was still in its infancy, Natalie decided to research the impact that decoupling has had on energy efficiency in various states. After some preliminary exploration, however, she realized that focusing solely on decoupling might fail to incorporate the other factors that could lead to an increase in efficiency. Energy savings can be prompted by other things, including customer behavior, building energy codes, and appliance standards.

While decoupling offers utilities a way to promote energy efficiency measures, the CEG research team decided that in order to expand the scope of the research, and move beyond a “known” solution, they needed to conceptually reframe the problem. The new framework, they decided, would be electric productivity, which measures, in dollars, gross domestic product divided by kilowatt hours consumed—in short, what society achieved with the power it used.

This seemingly simple change of focus turned out to have a significant effect on both the approach to the research and what it sought to uncover. Rather than limiting themselves to one particular solution for utilities, an analysis of electric productivity allowed ERT to better understand opportunities to use energy efficiency. This meant a broader menu of strategies and solutions that were already being explored but weren’t being implemented to their full potential. “Looking at productivity helped us not only better understand how effectively each state uses its electricity, but also how states compare to one another,” says Mathias. “While combing through this data, some of our initial findings were staggering. The disparities between states were much larger than we anticipated.”

There was another benefit to focusing on electric productivity: the economics. RMI has long promoted market-oriented solutions as an approach to driving energy efficiency, and ERT’s VP Stephen Doig advised the team that a clear economic component needed to be the guiding force of the research.
According to Doig, “People often get stuck on the technical details of efficiency. We wanted there to be a clear message that not only is there high efficiency potential in many places but there are large economic benefits to be had as well.” For maximum impact, opportunity linked to a dollar amount had a huge potential to not only spark interest among utilities but also motivate implementation.

Looking at the Bigger Picture

With a broadened framework also came a broadened focus. State-by-state opportunities were magnified in the bigger picture: the nationwide opportunity was an incredible 1.2 million gigawatts.

Over a period of six months, Natalie and Mathias assessed the electric productivity of all fifty states, adjusted for climate and economic mix—variables that enhance data accuracy. These factors allowed ERT to create an adjusted electric productivity target for each state. Mississippi, the state with the lowest electric productivity for example, had a target of over 24,000 gigawatt-hours of untapped efficiency potential, which is the equivalent of the electricity consumption of 2 million households.

While each state is unique, ERT points out that many lessons can be learned from the collective national knowledge on best practices, utility regulatory experience, and technology adoption. According to Natalie, “Taking lessons from efficient states will facilitate adoption and prevent states from sinking resources into ‘reinventing the wheel’ of state efficiency programs and implementation practices.”

The electric productivity of top-performing states, such as New York, California, and Connecticut, can serve as successful examples of how to overcome barriers to efficiency practices, regulate utilities, and implement new technologies. Poorest-performing states, like Alabama, Kentucky, and Mississippi, have a huge opportunity to build on the success of higher-performing states by closing their electric productivity gap using known and tested technology and policy.

The Next Steps

An essential part of closing the gap between what's being done and what's possible will be identifying key levers to increase adoption. Determining how to take advantage of both physical levers, (such as compact fluorescent lights, weatherization, or more efficient appliances) and policy levers (like stricter building energy codes and appropriate utility compensation for energy efficiency) is a critical research component that both Natalie and Mathias have been actively pursuing to push CEG into its next phase.

The next step of ERT’s research will be to create a roadmap to close the efficiency gap in each state. The roadmap will use each state’s adjusted electric productivity as a baseline, allowing RMI to measure the success of different efficiency measures on a case-by-case basis and prioritize which actions states should pursue to achieve the highest levels of electric productivity. “The goal of the research was not just to solve a theoretical problem,” says Natalie, “but to fix the real problem.”

To see how efficient your state is, and what you can do about it, visit RMI’s CEG interactive map.

Kelly Sweitzer is a public relations analyst at RMI

--Published April 2009

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