Voices: Energy Expert

Energy Expert explores the growing range of energy related opportunities and risks facing today’s Energy Manager. Peter Garforth draws from his considerable track record in establishing successful energy productivity programs that create profitable business solutions and enhanced competitiveness.

How will new EPA emissions rules affect you?

Peter Garforth says the sky really isn’t falling.

By Peter Garforth

The recent announcement of new EPA rules to reduce carbon emissions from power plants by 30% triggered a wide range of political reactions, from “the sky is falling” and “it’s the death of the economy” to “they are not even close to deep enough to prevent planetary collapse from climate change.” Inevitably the industrial energy manager will be asked about the new regulations and possible impacts on business. The reality will lie somewhere between the talking points, with minor overall impact for the average industry. It seemed appropriate to explore the rules in a little more detail.

The goal is to reduce carbon emissions equivalent to those caused by a 1,000 fossil-fueled power plants by 30% in 2030 from 2005 levels. On the surface, this looks daunting. However, the recent availability of cheap natural gas has already prompted a major shift from higher carbon coal to lower carbon gas. These are newer, more efficient plants. Also many coal plants have become more efficient in the past few years. By some estimates, half of the goal has already been achieved. To date, the sky has not fallen, though some regions have seen power prices increases. Overall, this has been a market reaction to cheaper fuel, not the heavy hand of government.

There is an important wrinkle in the rules. They allow targets to be achieved through combining increased plant fuel efficiency, fuel switching, increased use of renewable power, and increased efficiency of electricity end-use. The supply alternatives get the most attention in the headlines.

Peter Garforth heads a specialist consultancy based in Toledo, Ohio and Brussels, Belgium.Peter Garforth heads a specialist consultancy based in Toledo, Ohio and Brussels, Belgium. He advises major companies, cities, communities, property developers and policy makers on developing competitive approaches that reduce the economic and environmental impact of energy use. Peter has long been interested in energy productivity as a profitable business opportunity and has a considerable track record establishing successful businesses and programs in the US, Canada, Western and Eastern Europe, Indonesia, India, Brazil and China. Peter is a published author, has been a traveling professor at the University of Indiana at Purdue, and is well connected in the energy productivity business sector and regulatory community around the world. He can be reached at peter@garforthint.com.

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Opening new power plants and closing old ones have local ramifications in terms of jobs. Likewise, building windmills and installing solar arrays are visible, often contentious, programs. Claims of jobs gained or lost in the green power, coal, and gas industries will continue to rumble and make headlines for years. This rumbling started long before these rules and will continue for decades. It is the inevitable consequence of changing technologies, fuel cost variations, and changing market expectations, as well as changes in local, state, and federal rules, and even global treaties.

The aspect getting less attention in the sound bites is that they allow end-use power efficiency to count to the targets. This lack of attention is partly the usual problem of the invisibility of efficiency. Insulation, low-e windows and efficient motors fail to raise the same degree of emotion as coal-fired power plants and windmills. It is also partly due to a broad lack of understanding of the sheer scale of the efficiency potential.

Seventy percent of U.S. electricity is used in homes and buildings. There has been reasonable progress in the past few years in increasing the efficiency of new construction with changing codes and market pressures. There is still a long way to go before all states have new building codes at the levels of California and Ontario. However, there is a clear trend caused as much by consumer demand as regulatory pressure. Practices are increasingly being benchmarked globally causing German and Scandinavian energy performance to creep into new commercial construction. It is only a matter of time before the same trend moves to residential with near-zero new developments becoming the norm.

New construction is only the tip of the efficiency iceberg. It would take more than a century for the effect of changing codes to affect the whole market. The vast majority of electricity use is in existing homes and buildings, which are some of the least efficient on the planet. As every good energy manager knows, the first slice of efficiency in an inefficient system is relatively easy to capture at low cost. Once all the noise dies down, the rules will probably create more structured local programs aimed at large-scale building efficiency.

The remaining 30% of power is largely used by industry. Industry is far more efficient than buildings, generally approaching global levels of efficiency. It is also a sector where continuous improvement in efficiency is common practice. Industry will deliver a decent chunk of the target as “business as usual.”

Last but not least, the rule also sets different targets for different states depending on both the current generating fleet and the potential to fuel switch and increase supply and demand efficiency. It is likely that carbon reductions between states will be traded. The overachievers can sell their overage to the underachievers. In principle, this should drive the reductions to the least cost solutions, with a bias to end use and conversion efficiency.

The bottom line is that the overall impact on electricity prices will be minor, though local variations could be significant. The sky won’t fall, but the energy manager needs to stay abreast of the story as it develops.

Read Peter Garforth's monthly column, Energy Expert.

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