Despite the lack of attention paid to the issue during this year’s presidential campaign (at least, before Sandy came along), Barack Obama’s first term was a bit of a quiet revolution for climate change policy in America. It’s true that within his first two years in the Oval Office, the president had abandoned any efforts at passing a cap-and-trade bill, which went from the policy of choice for both major-party candidates in 2008 to political poison in 2010. But that failure belied a massive shift in energy and climate change policy that Obama was able to accomplish with relatively little fanfare in just his first few months in office. This profound change came in the form of the stimulus bill.
More than 11 percent of the $831 billion American Recovery Act went to energy spending, most of it green.* Of the $97 billion spent on renewables, smart-grid infrastructure, fuel efficient vehicles, and the like, the largest portion—$32 billion—went to energy efficiency and retrofitting projects. This was the biggest such investment in the history of history. It may even have finally heralded the arrival of a “Negawatt Revolution” that noted environmentalist and Rocky Mountain Institute founder Amory Lovins described 23 years ago.
The Negawatt is the general principle of cutting electricity consumption without necessarily reducing energy usage through things like energy efficiency. Lovins first introduced it in the keynote address to the 1989 Green Energy Conference in Montreal:
Imagine being able to save half the electricity for free and still get the same or better services! … You get the same amount of light as before, with 8 percent as much energy overall—but it looks better and you can see better. … In the space conditioning case—heating and cooling—you get improved comfort. … It is doing more with less.
The Negawatt itself is a theoretical unit of power measuring energy saved—Lovins came up with the idea after seeing megawatt misspelled with an n and deciding that this was a potentially useful conceptualization. It sounds self-evident now that you could reduce electricity consumption not by cutting back on energy usage but by improving energy efficiency standards and modernizing antiquated power sources. But the concept was revolutionary at the time. A major problem with getting people to understand the environmental and cost-savings benefits of energy efficiency was a perverse incentives structure that rewarded power companies based on amount of electricity sold, not for how much of a needed service it was providing. Lovins described the dilemma as such:
There isn’t any demand for electricity for its own sake. What people want is the services it provides. … Nonetheless, most of our utilities have gotten into the habit of thinking they’re in the kilowatt-hour business, so they should sell more. … For some reason, it’s hard for them to get used to the idea that it’s perfectly all right to sell less electricity, and so bring in less revenue, as long as costs go down more than revenues do.
Though Lovins brought the idea to the fore of the environmental policy discussion, he wasn’t the first to articulate the issue: In 1982, California devised an inspired solution, called decoupling, to this problem. The idea was that the state would reverse the incentive structure by establishing the revenue rate that the power company would need to meet in order to return a profit, along with a separate target for electricity production needed. Any revenue over the target amount would be returned to customers, while anything below would be added on to the following year’s bills. This meant that greater efficiency could actually return greater profit.
Decoupling is largely credited with making California the most energy efficient and environmentally friendly state in the country. But a mere disincentive to keep utilities companies from pegging profits to electricity usage was not enough, so the state launched a second program called “decoupling plus” in 2007 in order to incentivize power companies to lower their electricity production. Through this program, regulators set savings targets, and customers are asked to pay fees to help provide the down payment for power companies to meet these targets. Regulators then calculate long-term economic savings of this efficiency. If the utilities meet or surpass their targeted electricity savings, they get a cut of the projected savings. If they don’t meet the targets, the utilities pay a fine.
In 2007, California was still the only state in the union to have even a basic decoupling system in place. In the last five years, though, there has been a decoupling revolution across the country. By the start of 2011, 27 states and the District of Columbia had adopted gas decoupling, electric decoupling, or both. While the incentive programs are not yet in place in the vast majority of these states, at least the initial roadblock of the bad incentive structure has been largely removed.
In his definitive account of the Recovery Act, The New New Deal: The Hidden Story of Change in the Obama Era, journalist Michael Grunwald credits the stimulus with this sea change. The stimulus used “arcane language requiring governors to pledge to promote efficiency friendly utility rules and greener building codes” to transform the regulatory landscape. Stephen Chu’s Energy Department was focused foremost on the “low-hanging fruit” of energy efficiency, Grunwald says, and this was borne out in budget priorities focused on retrofitting old buildings and ensuring that new ones were built under the highest efficiency standards. The 2009 Recovery Act paid for “thousands of retrofits of federal buildings, data centers, border stations, public housing projects, colleges, military bases, city halls, fire stations, and more.”
In 2011, once the cap-and-trade plans had been stymied in the Senate and eventually abandoned altogether, the Energy Department returned to promoting efficiency. It proposed a plan for the government to collaborate with private businesses to invest in energy efficiency. Bypassing Congress, Obama used his executive authority to direct federal agencies to commit $2 billion of their existing budgets to pay for energy efficiency upgrades. This money was matched by a promise of $2 billion from the private sector to upgrade businesses, factories, and military housing.
A May 2011 report estimated that spending on energy efficiency programs in the United States will as much as quadruple between 2009 and 2019. Still, we are nowhere near where we ought to be in terms of efficiency. A $500 billion investment in energy efficiency right now would pay off in $1.2 trillion in savings down the road, says Jon Creyts, a program director at Lovins’ think tank, Rocky Mountain Institute. “We’re currently on pace to capture [just] one-fifth of that by 2020,” he adds.
Creyts was the principal author of a pair of McKinsey reports in 2007 and 2009 that demonstrated the ultimate economic benefits of initiating a bolder Negawatt plan. One, “Unlocking Energy Efficiency in the U.S. Economy,” suggests that reaching our full efficiency potential would reduce energy consumption by 23 percent by 2020 and result in the abatement of 1.1 gigatons of greenhouse emissions, in addition to the cost savings.
While these ultimately cost-saving investments in efficiency have been strong at the MUSH level (municipalities, universities, schools, and hospitals) over the last five years thanks in large part to the stimulus, the private sector is still lagging. Still, one of the main successes of the Recovery Act was to create a cultural and educational shift. “The original [Recovery Act] had a bunch of money around weatherization assistance programs, which is not the most cost-effective form of energy efficiency, but it is the most local and personal form,” says Creyts. This, he believes, helped lead to increased awareness at the local level, where many changes start.
Still, the right incentive structures to encourage the necessary investments in energy efficiency are not yet in place. Energy bills are still viewed by customers in terms of monthly costs that would go up because of short-term investments rather than yearly ones that will ultimately go down because of long-term savings. A “shared savings program” like the decoupling-plus plan in California is one good way to move the incentives structure in the right direction. But it took 25 years for other states to catch up with California’s first decoupling initiative. The Negawatt Revolution may have begun in earnest during these past four years, but we can’t afford to wait until 2037 for it to finally reach its full potential. The possible benefits to the environment—and the economy—are too great for us to continue to forego.
Correction, Nov. 29, 2012: This article originally stated that the American Recovery Act cost $700 billion and more than 13 percent of it went to energy spending. It cost $831 billion, with more than 11 percent going to energy spending. (Return to the corrected sentence.)