Debunking an Attack on Energy Efficiency and the Clean Power Plan: NERA Study Falsely Inflates Costs

, , energy analyst | November 14, 2014, 2:26 pm EST
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A recent study conducted by NERA Economic Consulting — funded in part by fossil fuel industry trade groups — falsely inflates the cost of the Environmental Protection Agency’s Clean Power Plan by denying energy efficiency’s proven ability to save consumers money. Here’s what they got wrong, and why it matters.

The Environmental Protection Agencies proposal for limiting carbon emissions from existing power plants is under attack by fossil fuel special interests using flawed and biased analysis to artificially inflate cost estimates.

The Environmental Protection Agency’s proposal for limiting carbon emissions from existing power plants is under attack by fossil fuel special interests using flawed and biased analysis to artificially inflate cost estimates.

The NERA report purports to analyze the EPA’s historic proposal to limit heat-trapping carbon emissions from existing power plants. Power plants are the nation’s largest source of carbon emissions, and the EPA seeks to reduce these emissions by about 30 percent compared to 2005 levels by 2030.

In attempting to analyze the potential costs and benefits of the EPA’s proposal, NERA’s analysis suffers from a variety of errors and biases, particularly around the role that energy efficiency has to play in cost-effectively reducing carbon emissions.

Energy efficiency makes economic sense

Energy efficiency is a big part of the proposed pathway towards complying with the EPA’s new standard — and rightfully so. Study after study has shown energy efficiency has enormous potential to help meet electricity demand in the residential, commercial, and industrial sectors at costs lower than the cost of electricity. Two recent reviews, for example, show clearly how energy efficiency is America’s cheapest energy resource:

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This post is part of a series on the EPA Clean Power Plan.

These studies indicate that even the EPA’s estimate of the cost to ratepayers of energy efficiency — about 3.25 cents per kilowatt-hour – may be too conservative.

The NERA study, though, makes no mention of any of these cost analyses, instead using a 2012 study that has been repeatedly discredited to justify assuming a levelized cost to electricity ratepayers of 5.3 cents per kilowatt-hour of energy saved. ACEEE actually wrote a white paper detailing the errors in the study that NERA cites, causing the study authors to make changes to the original study.

A large body of literature documents how energy efficiency can serve as a cost-effective resource for meeting future energy demand. NERA's use of a discredited 2012 study to estimate efficiency costs shows a clear bias against this energy efficiency. (credit: Shutterstock.com/Kzenon)

Energy efficiency is a cost-effective resource for meeting future energy demand. NERA’s use of a discredited 2012 study to estimate efficiency costs reveals a clear bias against energy efficiency. Photo: Shutterstock.com/Kzenon

Unfortunately, these changes were ultimately found (again by ACEEE) to be inadequate to fix the biases and flaws contained in the study. ACEEE ultimately concluded that the study authors “interpret available data in ways that best support their points, downplaying other research findings.” By ignoring readily available data from a wide array of credible sources in favor of such dubious assumptions, NERA reveals a clear bias against energy efficiency.

In fact, real world data shows that savings from energy efficiency outweigh the costs. A 2014 World Resource Institute review found that energy efficiency programs in 24 states “regularly save consumers $2 for every $1 invested, and in some cases up to $5.” Similarly, a study completed by ACEEE found that every dollar invested in energy efficiency yields $1.25-$4.00 in savings. Finally, in its own analysis, the EPA found that over the lifetime of the Clean Power Plan, consumers’ electricity bills will be 8 percent lower thanks to improvements in energy efficiency.

Why does NERA get it so wrong on efficiency?

NERA’s analysis was commissioned by fossil fuel industry trade groups that represent several of the world’s largest emitters of carbon emissions. Members of the American Coalition for Clean Coal Electricity include powerful coal interests, such as Peabody Energy and Murray Energy, whose CEO has described climate change as a “hoax” on Fox News. The Board of Directors for the American Fuel & Petrochemical Manufacturers (AFPM) includes BP, Chevron, ExxonMobil, and Shell.

While all of these big oil companies now publicly say they accept the science on climate change, AFPM has suggested that the EPA is obliged to consider claims “rejecting the existence and causes of climate change.” The EPA went above and beyond the call of duty and did just that, concluding that the scientific evidence supporting its finding that climate change threatens public health and the environment is “robust, voluminous, and compelling.”

It should come as no surprise that fossil fuel interests who spread disinformation on climate science are just as willing to mislead on the economics of climate solutions. The widely recognized need to address the growing threat of climate change should facilitate an honest discussion on the best ways to reduce our carbon emissions — one based on sound science and robust analysis.

Unfortunately, NERA’s biased and misleading study does nothing to further that effort.

Posted in: Energy, Global Warming Tags: , , , , , ,

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  • Greyguy

    Under Bush and Obama there have been EPA studies that were not favorable to global warming “science” and several whistle blowers were treated badly and reports suppressed.

    As to energy conservation, it is a great thing that is economically driven by higher energy costs. Unfortunately, the contracting businesses that do this work usually get the cost so high even with government subsidies, getting your money back in five years is usually a waste of time and money unless you see yourself living in the house for 10 plus years. The government programs and tax incentives ctually lead to price increases, I replaced my A/C with a heat pump one year for $3K and two years latter it was going for $5K. That kindofinflation had to do withthe government giving tax writeoffs and driving demand up and creating infalation on this equipment and the contractors jacked up their rates as well. Keep the government out of the business anlet economics dictate the reality.

    • samgomberg

      Thank you for your comment. You raise a particularly pervasive issue – making sure that gov’t funds are spent wisely and with an eye towards the ultimate goal of encouraging the adoption of energy efficient technologies and protecting against abuse of well-intended programs.

      In response to your final comment about keeping the government out of business, I would tend to disagree in this context. Our electricity system has never been a free-market system, and for good reason. Pure economics would not have driven the widespread electrification of the United States, or the access to affordable electricity that has driven our economy for more than 100 years.

      Regarding things as critical to our way of life as a reliable and affordable electricity system (or safe drinking water, or safe communities, etc.), some government action to improve efficiency and sustainability can be warranted.

      In the case of energy efficiency, I believe that programs designed to help homeowners and businesses overcome the upfront cost of a good investment are important, particularly when those programs are shown to have societal benefits such as cleaner air, more affordable electricity and reducing our impact on climate change.

      Thank you again for your comment.

      • Greyguy

        I do not have a real problem with public utilities per se, and government involvement, but they are not clean with the way they do their rate increases. The generation of electicity is not the problem, where it gets weird is the transmission costs where most of the companies do marginal maintainance and loose a lot of what they generate and we pay for it. And they use the transmission to control anyone who trys to compete with them who has excess capacity by altering transmission rates. The companies claim a 7% loss, but I have seen estimates inexcess of 30% due to long distance transmission, line condition [especially away from the big lines], and lackof investment yet they chage like hack. For instance the wires on the house where I have lived have never been replaced [on a damp day the leaves of nearby trees turn over, oops insulation is on its way out]. The meter readrs still come around, why don’t they get the “EZ PASS”drive by transmitters, even my local yokal water company has them, this is the largest power company in Ohio! These are not the most efficient companies since they are regulated and the way they run their barge/river fleet is more expensive than most of the others on the regional rivers.

        Unfortunately, the power[elec & gas] get involved in certifying contractors or certain types of equipment, this is where things go off the tracks. Equipment manufactuers line up to get certified and their products become more expensive which ends up defeating the purpose of being more energy efficient, lower cost. Between the way the government tax effected the energy credit and the high cost of using only people that the energy companies who were approved, it was noto worth it. What the government never gets, is that the economics have to work and when they get involved, the subsidy is usually offset by higher prices from the government certified suppliers.
        If they would just stay out of the decision process it would work better and be cheaper.

  • Jeff Ihnen

    Energy efficiency is my career. I’m a major owner of our firm and I blog weekly. One thing I point out all the time is that articles like this are in a way hypocritical. It says the bogus studies are funded by big oil and coal. Meanwhile, the good studies are produced by energy efficiency organizations funded largely by govt. don’t get me wrong. ACEEE and LBNL are sound and credible outfits. In fact ACEEE did a nice job drawing distinctions between these various studies in a diplomatic way, with no mudslinging. I read their stuff all the time. But to the masses who we are trying to win over, this looks hypocritical.

    • samgomberg

      Thanks for your comment Jeff. You raise a good point. I would, however, point out the distinction that ACEEE and gov’t agencies are non-profit entities with a mission of providing public service — a far cry from the fossil fuel special interests that funded the NERA study.

      That being said, if you look at the ACEEE website, there is a long list of funders and Board members that do have a financial stake in the promotion of energy efficiency. That’s why it’s important to do our own due diligence. We have a long history of working with ACEEE (and NREL for that matter) and they have proven time and time again to produce reports that are based on rigorous, scientifically-sound analytics. In ACEEE’s case, this approach has garnered them respect on both sides of this debate.

      We try to be careful in our approach to critiquing analyses on either side of the debate, but when an industry-funded analysis is used in a political context such as this – and when it includes such an egregious error that biases the results (and is relatively easy to identify and explain), we do feel compelled to respond.

      But thank you for your comment. In future, I will be particularly careful in the future to approach this topic with an eye toward our ultimate goal of defending good science and calling out flawed science in the policy debate.

  • Richard Solomon

    Not having heard about the NERA’s recent study, I found this piece informative. The conclusion, however, is much too kind.

    The NERA is not being paid to promote a discussion based on ‘…sound science and robust analysis’ of all the facts about energy efficiency. It is being paid to further the agenda of the fossil fuel industry: to at least greatly curtail, if not roll back, efforts to reduce our carbon footprint on the planet because these are interfering with the profits of the fossil fuel industry. The industry wants to maximize and privatize its profits while they minimize and/or socialize its costs to the general public. When sound science and robust analysis interfere with their goals, the industry works to undermine these efforts in any and every way it can.