Sunday, April 27, 2008

Energy Efficiency Credit broker?

I had an odd thought yesterday while I was attending a Northwestern University student sponsored Energy Day conference. The odd thought is could we partially resolve our energy crisis by creating a tradeable Energy Efficiency Credit?

Now the odd thing about this is that currently an end user gets 100% of the benefit of any energy efficiency measure. But investments into energy efficiency are almost always lower than they should be from a system wide perspective. If you turn off an unused light, you save money that would otherwise be wasted. But there are large forces in the world (utilities, bulb manufacturers, and their various supply chains) that benefit almost as much if you don’t turn off the unused light. Many times the person in charge of turning the light on or off isn’t even the one paying the bill, (i.e. employees, guests, children!) further separating a more efficient act from the beneficiary.

Normally or in cases of much greater value attached to the “wasted resource” such a disconnect is addressed by government regulation, like mandating higher safety levels/inspections if life or limb is at risk, or private regulation, “supervisors” or “managers” are hired (presumably or at least initially) to minimize wasted human time/effort. But the cost of wasted energy hasn’t generated this level of attention yet.

There is almost a paradox of energy efficiency that although the savings from greater energy efficiency are massive in aggregate, they are quite small for each consumer efficiency action (almost negligible) and diminish with each additional action. A single 100watt lightbulb left on 24/7 all year long costs $87.60 assuming $0.10/kwh electric rate. An equivalent CFL/efficient bulb left on all year long costs $21.90. Obviously if the bulb is not used, it is big waste in either case, but by installing a more efficient bulb, the further savings from turning off the unused efficient light is much less.

People familiar with the renewable energy market know that certain governments have created a tradeable item called a renewable energy credit/certificate (REC) to capture the environmental benefits of producing electricity from clean sources. Since electrons (and more importantly electric meters) presumably don’t care how they are generated—it might be fun to write a SciFi story about how electrons feel—utilities (with rare exceptions) haven’t felt much urgency to invest in newer cleaner generating technologies which at least initially are more expensive than fossil fueled generation technologies. So a REC allows a power generator that uses a clean generating technology to sell the “clean benefit” to someone who cares, completely apart from whoever uses the actual electrons generated. Before the REC, a clean power generator could only sell electrons, now the generator can sell both the electrons and the clean benefit, thereby recouping some of the initial high cost of the clean technology. RECs have been a significant incentive that has increased investment in renewable technologies where it has been implemented.

So how would an Energy Efficiency Credit (EEC) change things? For starters, if even a small fraction, 10% or 20%, of the energy savings of an efficiency action/investment could be aggregated over all users, and then bought and sold by a third party (say an EEC broker who could derive a profit), there would immediately be a self-interested party big enough to effectively press for greater efficiency from all parties in and across the energy supply chain. And yes I understand that it is "inefficient" in a way to insert a broker between the energy generator and the energy user--I'm not the least bit certain an EEC broker is a "good thing" in and of itself, but it might radically alter the energy landscape and incentives and possibly in the right direction. (Alternately it could be a horrible idea akin to the HMO fiasco--provided the EEC broker isn't properly regulated.)

An EEC broker would of its own self interest promote more efficient technologies (such as lights with sensors that turn themselves off, if no one is around—a well known technology but one that is vastly under used) and educate the public or businesses about them. Like the “Intel Inside” branding campaign the EEC Broker could endorse/co-brand/subsidize advertising for more efficient technologies. The EEC broker could encourage (perhaps even “bribe” by selling them discounted credits) electronics manufacturers to chose technologies without/with lower vampire drains, more efficient power supplies, invest R&D dollars alongside electric utilities in reducing electric line losses and more efficient transmission equipment. The EEC broker could be present at the biggest energy decision points, advocating efficiency, and “greasing” the wheels of efficiency.

I’ve used some hard-knuckle language to describe the activities of the EEC broker but, in fact it would be (ideally?) pursing goals that benefit all of us in the long run.

PS This is my 2-year blogversary! I've recieved over 2600 visitors, 3300 page views. Thanks for stopping by!

Edit 4/28/08 as I was drifting off to sleep I realized that I slipped a decimal point on my always on lightbulb example--now fixed.


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