Lenard Paper Also Stresses Importance of Specifying Baseline Correctly
June 11, 2009 – Incorporating energy efficiency into a Renewable Electricity Standard (RES) allows greenhouse gas (GHG) emissions goals to be achieved at lower cost, but is still a second-best solution, according to a new paper by TPI President and Senior Fellow Thomas Lenard. Such standards are part of climate change legislation now being considered in the Congress.
Lenard’s paper examines how cap-and-trade, RES, and energy efficiency fit together, which is also the subject of a June 12 TPI Congressional Seminar. Lenard’s paper makes the following points:
- There is general agreement that cost-effective environmental regulation uses market mechanisms, such as a tax or a cap-and-trade program, in order to leave choices about the least-cost ways of achieving policy goals to individual producers and consumers.
- An RES is the opposite of a market-oriented approach, because it prescribes technologies regardless of cost, rather than prescribing a goal and allowing firms and entrepreneurs to develop innovative and efficient ways of meeting those goals.
- Under a cap-and-trade program, an RES is unnecessary to achieve GHG emissions-reduction goals and, in fact, counterproductive because it raises the costs of achieving those goals. However, an RES can be made more market-oriented by allowing energy efficiency to count toward the RES requirements.
- The amount of energy efficiency allowed to satisfy any RES should not be capped. A binding cap would simply raise the costs of achieving GHG reduction goals.
- Incorporating energy efficiency into an RES would give utilities a stronger incentive to promote a variety of conservation measures, including the smart technologies that allow consumers to better control their electricity use, and dynamic pricing programs that make those technologies more effective.
- If energy efficiency in an RES is defined relative to a baseline level of consumption, the baseline must be permitted to grow at an appropriate trend rate over time. Otherwise, the requirements to use renewable generation will be even more stringent than under a pure RES.
The Technology Policy Institute
The Technology Policy Institute is a research and educational organization that focuses on the economics of innovation, technological change, and related regulation in the United States and around the world. More information is available at http://www.techpolicyinstitute.org/