Effects of Energy Conservation Exceed Most People’s Expectations

—Exclusive Interview with Barbara Finamore, President of the China-U.S. Energy Efficiency Alliance (Part I)

Jiansheng Ma, Yao Xu
China Electric Power News
July 10, 2014

“American electricity companies have already benefited from energy efficiency

China Electric Power News: As we all know, China has become the largest energy-consuming country in the world. This has caused many environment problems. In your opinion, how should China balance the relationship between economy, energy, and the environment issues?

Barbara Finamore: Yes. I think it is very important to find a way to reduce energy demand and cut reliance on coal while maintaining a strong economic growth. This is also a worldwide goal. In the United States, particularly California, they have found a solution. For instance, in the past forty years, California’ energy policy has laws and regulations   held energy demand even while keeping economic growth. Hence, I believe that this goal is achievable.

CEPN: How can we accomplish this?

Barbara interview pic 8.4.14

Barbara Finamore being interviewed by Jiansheng Ma & Yao Xu of China Electric Power News

BF: I am happy to share our experience in this area. One major measure California employed is energy efficiency. This measure is much more effective than most people expected. California’s way is interesting—

They consider energy efficiency as an energy resource. Compared to other resources, it is cheaper, cleaner, more convenient to use, and has no negative effect on the environment. Instead, it brings more environmental and economic benefits.

For instance, we consider electric conservation as an additional energy resource. Every dollar invested in energy efficiency brings potentials to save money, and it is so much cheaper than other energy resources (even coal). People are therefore willing to invest in this area. In practice, many state governments require power plants to invest for energy efficiency. This is a very exciting move.

But this is only the first step of the energy efficiency program. The electricity company needs to make money too. If we follow the old scheme, the more an electricity company invests in helping its clients save electricity and cut energy expenditure, the less money it would be able to make. Because of this, California (other states followed its lead) introduced decoupling, which enables the electricity company to ensure a certain amount of profit by saving electricity for their clients. This is different from power plants’ regular profit source; it innovatively created a new profit model for them.

You might think the electricity companies are not interested, but actually it’s the opposite. This is because no matter how much electricity an electricity company is able to sell within a certain period of time, whether it is profitable or not, under this energy conservation profit model, a reasonable and stable return is guaranteed. In early 1990s, some power plants in California went bankrupt because the electricity and diminished profits. After that, they started to appreciate the benefits of this more stable profit system—When energy crises hit, while big profits would not be achieved through this system, it prevents losses. We believe that this model is suitable for public utilities, such as power plants.

 “The enforcement of environmental laws is vitally important”

CEPN: Can you give us some advice on tackling environmental pollution in China, especially smog?

BF: Currently, environmental and natural resource degradation cost China an annual 9% of GDP, a huge amount, while air pollution in China contributes to around 1.2 million premature deaths a year. It would be much cheaper to prevent environmental degradation than to clean up after it. The U.S., particularly California, has shown that it’s possible to reduce smog and grow GDP at the same time. The U.S. established the Clean Air Act (CAA) in 1970 to regulate harmful pollutants, while states like California set up their own Air Resources Board to administer the CAA in its own state.

Los Angeles’ severe smog in the 1970s acted as a catalyst for California to act and protect public health. California’s laws and regulations to clean up the environment and its energy efficiency programs for utilities, buildings, and appliances drove innovation, created jobs, lowered electricity bills and provided higher quality of life. Because of these efficiency policies, California avoided the need for dirtier, more expensive energy. Meanwhile, California created 1.5 million jobs between 1972 and 2006 from its efficiency policies, and spends half as much GPD on electricity than the rest of the U.S. In terms of environmental issues, China, like the U.S. in the 1970s, is at a turning point, because it can no longer ignore its pollution problems.

CEPN: You are an expert on environmental law and energy policy. The American environmental law is stricter than the Chinese one in both standards and enforcement. How strict is it in the States? Can you give us some examples?

BF: Yes. The first example is that American power plant regulators now have regulations on four major pollutants. This measure is great because it allows power plants to take the most cost-effective way to meet the requirements. The power plants are not dealing with one single pollutant at a time. In order to save cost, power plants can install the best equipment at the very beginning to control all these pollutants.

The second example is training. For instance, according to America’s latest carbon emission standards, states can create their own programs to educate power plants on how to meet environmental requirements. “Meeting requirements” has multiple meanings. One of them is that power plants should increase energy efficiency. In this way, power plants reduce their costs, instead of merely focusing on emission results (the outcomes of which are usually not desirable).

The last example is enforcement. And it is the most important one. China has issued new regulations to tackle environmental problems, such as setting limit on PM2.5. However, the U.S. has a more comprehensive enforcement system. States have first responsibility in enforcing environmental regulations. If their execution is not effective or strong enough, the central government can take over these programs. And then the Environmental Protection Agency (EPA) can enforce the regulations.

If these agencies cannot execute effectively, American citizens could sue the power plants, or even sue the government on the ground that it has failed to comply with the law. However, the citizen or organization needs to submit an intent-to-sue letter sixty days before the litigation, declaring the intention to sue. And within these sixty days, the state government or federal government could intervene if it chooses to. In that case, the citizen would not be able to pursue further suit, but this action at least reminds the government of the severity of the problem. In fact, the enforcement policy in China’s latest environmental law is fairly similar to the American approach. This was achieved after a long period of discussions, and is much more robust and comprehensive than the old environmental law passed in 1989.

“Include carbon emission in the environmental protection framework”

CEPN: What do you think are the key elements of China’s energy revolution? Comparing with other countries, what are the differences?

BF: I think the key is to reduce the reliance on coal because China generates 80% of its electricity from coal, contributing to nearly half of China’s PM2.5. In provinces like Hebei, coal produces 80% of the SO2. It is also the chief contributor to China’s greenhouse gas emission. Hence, reducing coal consumption will bring benefits to the environment, climate, and various areas of the economy. One excellent way of reducing coal consumption is to change China’s economic structure—reduce the size of manufacturing industry, and expand the services sector. Limiting coal consumption will help China achieve industrial transformation.

In fact, the U.S. has the world’s largest coal reserve, and it has increasingly stringent rules to regulate environmental problems caused by coal (there is pressure from environment, health, and climate). The U.S. first focused on regular pollutants. On June 3rd, EPA just released a carbon emission regulation, for the first time in history, setting limits to the emission of carbon dioxide as a pollutant. As early as in the 1970s, Natural Resources Defense Council (NRDC) helped write the Clean Air Act. Recently, we filed a suit against EPA and the aim is to include CO2 in environmental regulation.

Comparing with other countries, China is following a similar development pattern set by Britain, America, and Japan, which is grow first and clean up later. Its environmental problems also have historical parallels: most Chinese cities are no more polluted than Japan’s were in 1960. But China is still growing on a massive scale. While America and Europe are cutting their carbon emissions by 60 million tons a year combined, China is increasing its own by over 500 million tons. China’s economy and population are both huge and resource-hungry; therefore its impact on climate is unique.

In the U.S. when in 1969 the Cuyahoga River in Ohio caught fire, the EPA was founded and passed the clean air and water acts. Beijing’s recent smog and other pollution events could be China’s turning point. While China is spending a lot of time and money to clean up, it is also trying to grow more. Around 250 million rural residents will move to urban centers in the next decade, leading to even more demand for energy, construction, food, and material goods. So China must develop and implement smart growth policies.

NRDC is working with the government and researchers to see how to cap coal feasibly by ramping up alternative energy sources (energy efficiency, renewable energy, nuclear power, natural gas, and hydroelectricity).  China is projected to reach its peak coal use in 2035, and NRDC is working to help China achieve negative growth in coal consumption by 2025.