Before Adding, Try Reducing

The U.S. government offers a lot of subsidies to expand renewable energy. Should it be doing more to subsidize conservation?

By SARI KRIEGER

The U.S. government is committing billions of dollars to support renewable energy such as wind- and solar-power plants. Some say it should use more of that financial clout to encourage less energy consumption in the first place.
Advocates of conservation, including businesses that help homeowners and companies save energy, think there should be more subsidies and tax incentives for basics like insulation and window shading, and for newer, more costly products like light-emitting-diode lamps and building-automation systems. LEDs cost more but use less energy than incandescent bulbs. The new automation systems help buildings waste less energy on cooling, heating and lighting.
Projects that improve efficiency pay for themselves quickly, the advocates say, and help people and businesses save money. Renewables, meanwhile, cost more money to achieve the same reductions in carbon-dioxide emissions.
By the Ton
A study by New York-based management consulting firm McKinsey & Co. earlier this year compared the cost of eliminating one ton of CO2 emissions using different means: Wind power cost about $38 per ton of CO2 saved; solar cost about $30. But replacing incandescent lights in a home with light-emitting diodes saved about $159 per ton of CO2, and using energy-efficient appliances saved about $108 per ton.
Some say it makes more sense to retrofit buildings for energy efficiency before adding renewable technologies like solar and geothermal power, because buildings account for about half of the CO2 emissions in the U.S. Efficiency improvements, these sources add, are often an easy, cheap fix in the struggle to reduce CO2 emissions.
“No matter how you cut this, it is always better to reduce, then produce,” says Matt Golden, founder of Sustainable Spaces Inc., a San Francisco-based home-retrofit company and president of Efficiency First, a home-retrofit trade group based in Washington, D.C., with about 300 members. But, Mr. Golden adds, “it turns out the incentives are absolutely backwards. The things that save the most energy and create the most jobs get the least incentives.”
The recently passed stimulus package provided about $40 billion of funding in the form of grants, tax credits and research money for renewable technologies. But it had only about $20 billion for energy-efficiency measures, such as better insulation and highly efficient windows in homes, and automation systems in commercial spaces. These figures are based on government and industry-group calculations.
In the tax-credit portion of the bill, renewable technologies get a credit of 30%, with no cap on the amount, while the credit for energy-efficiency technologies is capped at $1,500, according to the Environmental Protection Agency. A hypothetical $40,000 solar-panel installation on a home would be eligible for a $12,000 tax credit. But a $20,000 energy-efficiency job on a home would be eligible for only a $1,500 credit.
Even the solar industry recommends starting with energy-efficiency steps. “It’s silly to invest in solar energy if the extra power is blowing out the window,” says Monique Hanis, a spokeswoman for the Solar Energy Industries Association in Washington, D.C. “We believe they work together.”
So why do lawmakers provide more incentives for renewable energy? Natalie Mims, an energy consultant at the Rocky Mountain Institute, Snowmass, Colo., says it’s because renewables tend to cost more and take longer to pay for themselves than most efficiency measures. “Renewable energy has historically received higher subsidies than energy efficiency, particularly in research and development,” Ms. Mims says.
But new efficiency technologies, while cost-effective, have yet to be embraced by a wider public; some are unfamiliar and may have a high initial cost, like LEDs, while others are older technologies that aren’t as interesting compared to solar panels, such as insulation. Subsidies, Ms. Mims says, could help these technologies spread.
Some energy-efficiency advocates say renewables get more government subsidies because wind farms and solar power are more glamorous and easier to understand than, say, building-automation systems and LEDs, and because the renewable industries are larger and more organized.
Clark Wilson, chief executive of Green Builders Inc., an Austin, Texas, home builder and retrofit company, adds, “The solar-panel industry has a great lobby and a unified story, while the efficiency industry spans several heretofore competing trades and [has] no one champion of the group.”
House Bill
One efficiency advocate in Congress is Rep. Peter Welch, a Democrat from Vermont. Mr. Welch supports renewables but says efficiency is his primary focus because it’s more cost-effective and creates more jobs. He introduced a bill in March that would create $10 billion of incentives over four years for homeowners and businesses that adopt efficiency measures. His bill has since been rolled into the energy bill now working its way through Congress.
“When you look at the stimulus tax rebates, the amount that goes to insulation is the least, but it’s the most effective,” Rep. Welch says. “Your first dollar spent you’d want to spend on what would give you the most return. I have been astonished about how neglected efficiency is when it’s the low-hanging fruit.”
Incentives in Rep. Welch’s bill are performance-based, offering homeowners rebates of $1,000 to $3,000 for achieving a 10% to 20% increase in efficiency, with $150 more for every additional percentage point of energy savings achieved. Businesses could qualify for 15 cents per square foot for the first 20% to 30% increase in efficiency, and as much as $2.50 per square foot for energy reductions of more than 50%.
The bill has 30 co-sponsors and is supported by environmental groups like the New York-based National Resources Defense Council.
“We should have the policy of efficiency first,” says Mr. Welch. Printed in The Wall Street Journal, page R4