Sunday, December 13, 2009

Energy Savings and Market Mechanisms

Last week Charlie Copeland praised Delaware's Sustainable Energy Utility (SEU) as a promising approach to promoting energy efficiency, noting that "the SEU uses market-based solutions — not additional mandates and regulations." He was right about the SEU using market mechanisms, but overlooked the obvious point that these market mechanisms, and the SEU itself, are established by legislation.
The SEU is partly funded by the Regional Greenhouse Gas Initiative (or RGGI), which conducts quarterly auctions of renewable energy credits or RECs. The latest auction of RECs is expected to net $1.6 million for energy programs; legislation adopted last year mandates that 65 percent of the proceeds go to the SEU.
One might think of RGGI as a smaller version of the cap and trade regime being considered by Congress, which itself is modeled after the successful system that reduced SO2 emissions that cause acid rain. A properly structured cap and trade system leads to the most cost effective solutions to reducing emissions, and promotes technological innovation that drives down costs even further. This is an example of the effective use of market mechanisms to achieve environmental objectives.
The market for RECs depends on setting renewable portfolio standards. In this way RGGI is the mirror image of the proposed cap and trade regime: RGGI established a market for RECs, while cap and trade would create a market for carbon emission allowances.
Copeland noted results from the SEU's Appliance Rebate Program, which got up and running earlier this year. The program has generated annual energy savings of 323,826 kilowatthours as of last month. The caption on the graphic rightly reads, "Small steps, adding up." The amount saved comes to 0.0029 percent of Delaware's energy usage in 2008, according to the Energy Information Administration.
Delaware has a long way to go to meet the energy savings targets (15 percent electricity and 10 percent natural gas by 2015) established by Senate Bill 106, which wisely doesn't mandate the means for reaching the targets.


Anonymous Edmund Dohnert said...

Given the political genesis of the Sustainable Energy Utility, I cannot help thinking that in reality it will turn out to be little more than a mechanism for steering state funds toward various politically-connected individuals and business entities.

The SEU will probably also serve as a good propaganda tool for helping to convince people what great things are being done in Delaware regarding energy policy.

9:48 AM, December 14, 2009  
Anonymous Anonymous said...

Dear Author !
It is necessary to be the optimist.

9:56 PM, December 18, 2009  

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