Beyonce Vs. Buffett: Why Conservative Energy Efficiency is More Cost-effective than “Sexier” Policy Options

Sue Libenson, Libenson Consulting, 907-766-2841, suelibenson@gmail.com

Steve Colt, University of Alaska, 907-786-1753, sgcolt@uaa.alaska.edu

Beyonce Vs. Buffett: Why Conservative Energy Efficiency is More Cost-effective than

“Sexier” Policy Options

Energy policy options

• Reducing the burden of energy cost: – Reduce the amount of fuel

used and/or the price of fuel

• Reducing the price of fuel:

– Reduce components of fuel prices

Evaluating Energy Policy Outcomes

• Amount of money saved• Amount of energy saved• Short term jobs created• Permanent jobs created• Timeliness of results

Energy efficiency is the most conservative and cost-effective energy policy option

But policy makers still focus on “sexier” energy projects

Efficiency projects are capital projects that create both short term and permanent jobs statewide

• Short term jobs are created while retrofitting buildings.

• 12 short term jobs are created for every $1 million in state spending

• Permanent jobs are created by new spending of money saved on fuel.

• 11 permanent jobs are created for every $1 million in new spending.

Residential Buildings and Energy Efficiency: Savings and Jobs Created

Avg. annual energy savings per household

Annual savings statewide

Energy savings statewide

Annual savings of natural gas

Annual savings of heating fuel

Jobs created through retrofit of residential buildings

Permanent jobs created through spending of savings elsewhere in economy

Home Energy Rebate Program

$1,297 $22 million

1.6 trillion BTU

1.1 Billion cu ft

2.5 million gallons

1,746 242

Weather-ization Assistance Program

$1,295 $7.8 million

371 billion BTU

87.3 million cu ft

1 million gallons

2,222 86

Combined $29.8 million

1.971 billion BTU

1.97 billion cu ft

3.5 million gallons

3,968 328

Savings and jobs created by retrofitting all of Alaska’s housing stock – putting billions

to workHomes retrofitted to date (approx. 10% of AK housing stock)

State funding spent to date

Annual savings statewide

Homes remaining to be retrofitted (approx. 70% of AK housing stock)

Estimated cost to retrofit entire AK housing stock

Projected annual energy savings

Projected jobs created through retrofit of residential buildings

Projected Permanent jobs created by spending of savings elsewhere in economy

Home Energy Rebate Program

17,500 $145 million (an additional $99 million was spent by homeowners)

$22 million $176 million/yr

Weatherization Assistance Program

8,400 $185.2 million $7.8 million $62.4million/yr

Combined 25,900 $330.2 million $29.8 million 180,600 +/-$3 billion $238.4 million/yr +/-36,000 2,600

Enormous savings and jobs creation remain to be realized through energy efficiency for public and commercial buildings.

Public Buildings – Potential savings and jobs creation

# of Public Buildings

Annual energy costs for public buildings

Projected annual savings

Projected annual public savings

Jobs created through retrofit of public buildings

Permanent jobs created through spending of savings elsewhere in economy

5,000 $641.2 million $25,000/building $125 million 7,568 1,375

Savings for public schools through energy efficiency

# of schools in Alaska

Total sq. footage Annual energy costs

Projected annual school savings (based on energy savings of 20%)

Jobs created by retrofit of schools

Permanent jobs created through spending of savings elsewhere in economy

479 26 million sq ft $90 million $18 million 1,090 198

Commercial Buildings – Potential savings and jobs creation- There are an estimated 15,700 commercial buildings with a total of 260 million square feet in Alaska.- Based on savings projected for public buildings, potential efficiency savings for commercial buildings could exceed $200 million per year.

Given potential for savings and jobs creation, is efficiency “sexy” enough for

policy makers ?

Reducing the burden of costs through financial assistance

Direct financial assistance from the state is another way to defray fuel costs.

Preliminary estimate of the cost of a broad-based heating fuel cost reduction program. The major assumptions are:

- 62,000 eligible households (about 50% of the estimated 125,000 Alaska

households who are not connected to natural gas)- 500 gallons per year limit eligible for assistance- $2.00/gallon average reimbursement level (this could vary depending on

differing actual prices of fuel in different areas)

The resulting cost of the program would be $62 million per year. An annual expenditure of this amount could be permanently endowed for approximately $1.2 billion, assuming a 5% rate of return.

Reducing the Price of Refined Fuels

Crude oil is the single largest component of fuel prices

Component of fuel prices that could possibly be affected by state policy

Components of average U.S. and Alaska gasoline prices for 2011 - dollars per gallon for regular grade

$/gal % $/gal %Retail price 3.52 3.93 Crude 2.43 69% 2.68 68%Refining 0.42 12% 0.66 17%Distribution & mkting 0.26 7% 0.33 8%Federal taxes 0.18 5% 0.18 5%State taxes 0.23 7% 0.08 2%

U.S. Alaska

Taxes

• Alaska has the lowest state taxes in the country at only 8 cents per gallon.

• The next lowest is Wyoming at 14 cents per gallon. New York residents pay the highest taxes of 49 cents per gallon. Federal excise taxes – which fund highway construction -- are currently 18.4¢ per gallon.

• Alaska temporarily suspended its gasoline tax from September 2008 through August 2009 under a bill championed by Governor Sarah Palin.

Regulating Alaska’s in-state refineries

Economies of scale and distance to markets

• Alaska’s relatively small refineries have a less favourable economy of scale which drives up the cost of each gallon of fuel produced.

• The distance to larger consumer markets also creates a disadvantage of additional transportation costs for exporting refined products from Alaska refineries.

• Because refined products are more expensive to transport

by tanker than crude oil, it has never been cost effective for Alaska’s refineries to produce products for export and achieve export volumes for to realize economies of scale.

Alaska refinery margins

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Refinery Cash Operating Margins

Alaska Cash Operating Margins West Coast Cash Operating Margins

Fuel storage and transportation

• Prices for jet fuel, which is bought and stored in large quantities, are more stable in Alaska than prices for gasoline and heating fuel.

• Our analysis suggests that the state could promote competitive market conditions for gasoline and heating fuel by 1) increasing the storage capacity for these fuels, especially in urban areas, that is available to independent merchants; 2) encouraging the purchase of these fuels in higher volumes at lower wholesale prices; or some combination of these approaches.

There is some evidence that rural Alaska fuel prices can be decreased by improving transportation or fuel storage infrastructure in conjunction with bulk fuel buying.

Which approach is most cost-effective?

$300 Million $60 Billion

The real money is in conservative choices led by energy efficiency.