November-December 2002
Conservation Update
Feature Article
Using Environmental Penalty Funds to Capitalize Clean Energy Projects
State Energy Offices (SEOs) frustrated by prohibitions against using State Energy Program (the first SEP) funds for capital purchases should consider tapping into the "other" SEP — Supplemental Environmental Projects. An alternative available to polluters on a voluntary basis, these funds can be used in tandem with SEOs' traditional SEP monies to "turn earth" and fund energy efficiency or renewable energy projects.
What Is the "Other" SEP?
In settling enforcement actions, environmental regulators require alleged violators to promptly cease the violation, remediate any harm caused by the violations, and pay monetary damages. The amount of the monetary penalty is determined by severity of the violation, the defendant's past environmental record, economic benefits accruing to the defendant as the result of the violations, and other factors.
U.S. EPA policy provides that, in determining monetary damages, regulators may allow an alternative to standard civil penalties. The violator has the option to offset some or most of the fine by providing funding for a Supplemental Environmental Project (the "other" SEP). The type of project allowed is determined by its nexus, or link, to the violation.
Under federal policy, the nexus can be somewhat broad. For example, a violation of clean water standards conceivably could be settled with a clean energy project in which most measurable impacts are on the ambient air. Policies in many states track the federal standard. However, state policies may be more stringent, and some states require a direct link between violation and project.
The Good News About the "Other" SEP
First, under EPA policy, permissible uses of environmental SEPs complement those of DOE's grants to SEOs. While State Energy Program grants may not be expended on capital purchases (other than demonstration projects), they may be used for the various analyses that attend development of a capital project, as well as for evaluation and information dissemination at project conclusion. EPA policy, on the other hand, prohibits the use of SEP settlements for educational projects and research. EPA's objective is to undertake actual projects that — but for the Supplemental Environmental Project settlement — otherwise might not have occurred.
Second, giving polluters the opportunity to invest in clean energy represents an alternative to "command-and-control" regulation. Regulators seeking a new approach, and violators desiring the public relations and tax-treatment benefits of project investment, still can maintain the integrity of the regulatory process and achieve lasting benefit to the environment.
Third, because SEP settlements represent "found" money, these projects arguably do not have to meet standard financial hurdle rates. Theoretically, this should enable creation of a broader range of technologically sound and environmentally beneficial but financially borderline projects. Moreover, markets might be moved accordingly.
The Not-So-Good News: Potential Obstacles to Supplemental Environmental Projects
SEP settlement negotiations are conducted by attorneys who typically do not know much about energy alternatives. They might not believe the environmental benefits attributed to energy efficiency and renewable energy, and are likely to regard clean energy projects as a hassle. Also, SEPs are voluntary. Unless a violator takes the lead in suggesting a clean energy project, overworked regulators are more inclined to negotiate a civil penalty. Not only do regulators have more experience and a higher "comfort level" with negotiating civil penalties, they also fear that suggesting clean energy SEPs might seem to be "leading" the defendant.
Another obstacle to the use of SEPs is that state budget shortfalls are likely to make collection of fines attractive to state legislators. This could provide an informal disincentive to regulators who might otherwise consider negotiating SEPs. Furthermore, negotiated settlement amounts in individual cases customarily are not large. Unless pooled with other settlements, they generally are insufficient to provide capital for expensive technologies or projects.
Some states have stringent policies requiring dedication of penalty funds to the area in which the violation occurred and, in some instances, to school districts. Sometimes these provisions are embedded in state constitutions, making them immutable as a practical matter. While such policies can circumscribe the universe of feasible projects, they should not be viewed as "deal-breakers."
To protect fragile or highly prized scenic resources, some states have instituted statewide zoning laws that can prohibit structures such as wind turbines or photovoltaic arrays. Legal interpretation is the purview of attorneys general, but they usually are unfamiliar with energy efficiency and renewable energy technologies. Consequently, they do not craft technology-friendly interpretations, despite their support for the environmental benefits that clean energy projects can produce.
A last obstacle is that potential funds available from SEP settlements depend entirely on environmental enforcement proceedings. This is daunting. There must be a suitable case. Some state regulators who have expressed interest in negotiating clean energy SEPs report that there are no appropriate cases and they don't know when there will be. Once a suitable case arises, it can be expected to take many months — often years — to prosecute and settle. Sometimes there are jurisdictional issues between state regulators and U.S. EPA (especially if the defendant operates in more than one state). Many factors can complicate and prolong proceedings. Moreover, all parties to a case must act prudently and cautiously, as all points are subject to judicial review and appeal.
Why Should SEOs Bother with the "Other" SEP?
If a case arises for which a clean energy SEP is an appropriate settlement option, it could present a unique opportunity to develop a project that otherwise probably would not occur. This could possibly jump-start local markets. At the very least, it could boost public awareness and provide additional experience with energy efficiency and renewable energy technologies. For technologies related to electricity generation, this could have a significant impact on future utility portfolio decisions.
Whether or not the opportunity to negotiate a clean energy SEP arises, SEOs can use the subject of SEPs (and State Implementation Plans, "SIPs") to build bridges to their counterparts on the environmental side. Few SEOs have formed this potentially valuable relationship, yet environmental regulators and energy offices share important goals and complementary authorities. Once a working relationship is established, it is possible that accelerated strides toward clean energy can be made for environmental reasons and with the support (and "muscle") of the environmental community in states and localities.
How Can SEOs Access the "Other" SEP?
There are several avenues for SEO access to state environmental regulators. Initial contact could be made at the executive or director level. This is how the Missouri and New Mexico SEOs started. Contact also can be made program manager to program manager. Because the major environmental impact of energy efficiency and renewable energy is on the ambient air, a good staff-level contact is with air quality enforcement officers.
Once contact is made, SEOs can assist their environmental regulators in multiple ways, including but not limited to the following:
- Typically, regulators do not know enough about clean energy technologies to believe the estimates of environmental benefits. SEOs can help educate them in this regard. SEOs also can learn about the concerns and professional drivers for regulators and, consequently, learn how to assist them in ways that are meaningful and useful.
- If a suitable case arises, SEOs can suggest appropriate projects and perhaps provide some of the analysis needed.
- SEOs might go a step further and develop a "pipeline" of different kinds of clean energy projects that might be appropriate for different kinds of cases. (See related article, "The "Other" Pipeline: Strategic Environmental Project Pipeline
- SEOs can be pivotal in states with narrow nexus requirements for SEPs, educating regulators to the possibilities of clean energy SEPs for schools or in the geographical area to which a SEP might be tied under state law.
- If SEOs learn from their environmental colleagues that a multi-state case will be prosecuted, they can work with their DOE Regional Offices to collaborate with regional EPA offices, so that all can use their complementary skill sets and authorities to work with the violator toward creating a clean energy SEP. (See "DOE Regional Office Contacts for Supplemental Environmental Projects.")
- SEOs can build working relationships with the staff of their state attorney general's office, identifying potential impediments to clean energy projects.
Although the regulatory process can be lengthy and convoluted, timing is everything. The moment for critical input can come and go without the SEO knowing about it. Consequently, SEOs need to establish productive, on-going working relationships with their colleagues in other state agencies, so that regulators or assistant attorneys general know whom to call when a situation arises that might require swift input or action.
The Colorado Wind SEP
A project in Colorado exemplifies how it works. In August 2000, the Air Pollution Control Division of Colorado's Department of Public Health and the Environment (CDPHE) finalized a settlement agreement resolving an enforcement case with a Denver company for an air pollution violation. The firm, which is a large consumer of electricity, chose to mitigate its civil penalty through an SEP. Through the settlement, the firm paid a non-compliance penalty to CDPHE of $30,600 intended to offset the economic benefits accruing to the firm for its noncompliance with environmental regulations.
However, because it cooperated in the settlement, CDPHE allowed the firm to reduce the civil penalty by 20% and investing the funds in an SEP instead of paying a fine to the agency. Under the SEP, the company pays a total of $303,360 into an interest-bearing escrow account managed by the local electric utility's wind energy program, WindSource. The funds are dedicated to payment of the premium for wind-generated electricity under WindSource sufficient to meet the company's electricity needs for up to five years.
CDPHE and DOE's National Renewable Energy Laboratory (NREL) in Golden, Colorado estimate the annual pollution prevented as the result of this wind energy SEP as follows:
- 97 tons NOx
- 73 tons SO2
- 3,640 tons CO2
For more information about this project, see the NREL fact sheet published in April 2001 and titled Supplemental Environmental Projects Using Renewable Energy: A New Approach to Addressing Air Quality Violation Penalties. (PDF 135 KB). Download Acrobat Reader.
Strategic Environmental Project Pipeline
A new Colorado foundation shows how qualified projects can be lined up in advance for supplemental environmental funding. In July 2001 representatives of Colorado's environmental and clean energy communities came together to create the Strategic Environmental Project Pipeline (StEPP) Foundation. Organized as a nonprofit corporation, StEPP's mission is to increase the number of renewable energy, energy efficiency, and pollution prevention projects in its pipeline.
StEPP encourages submissions of project ideas from around the country into the pipeline where it is matched against a database for potential funding. For details, see the StEPP project submittal system.
On the other hand, potential funders may approach StEPP with specific project criteria, in which case the foundation will issue a request for proposals (RFP). For example, StEPP issued its first RFP in summer 2002 for clean energy projects with the potential to reduce pollution in three counties in Colorado. StEPP expects funding at a minimum of $25,000 to be provided for one to three years per project. Independent, objective, expert panels were convened to review and rank the proposals.
In effect, the StEPP Foundation, aggregates funds and applies them to clean energy projects. By providing for expert review of project proposals, it also provides a service to busy environmental regulators who otherwise might not have the time, resources, or expertise to solicit, evaluate, and oversee energy projects on their own.
Contacts
For further information on this subject, contact the following:
Roya Stanley
State and Local Initiatives
National Renewable Energy Laboratory (NREL)
303.275.3057
roya_stanley@nrel.gov
Carol Tombari
Mountain Energy Consultation LLC
303.838.0275
coloradotombaris@earthlink.net
Karin Sinclair
National Wind Technology Center
NREL
303.384.6946
karin_sinclair@nrel.gov
Atlanta Regional Office
Steve Hortin
404.562.0593
steve.hortin@ee.doe.gov
Boston Regional Office
Hugh Saussey, Director
617.565.9700
hugh.saussey@ee.doe.gov
Chicago Regional Office
Bill Hui
312.886.8586
bill.hui@ee.doe.gov
Denver Regional Office
Jerry Kotas
303.275.4850
jerry.kotas@ee.doe.gov
Philadelphia Regional Office
Maryanne Daniel
215.656.6964
maryanne.daniel@ee.doe.gov
Alternate: Ellen Lutz, Director
215.656.6954
ellen.lutz@ee.doe.gov
Seattle Regional Office
Jeff James
206.553.2079
Jeffrey.James@ee.doe.gov
State Energy Offices Bulletin
Stories submitted by state energy offices about their projects.
Arizona
Partnership Helps Federal Housing Residents Reduce Energy Costs
The Arizona Energy Office and the Federal Energy Management Program (FEMP) have partnered to provide a training program on how to reduce energy costs in federal housing units. In June, Energy Office staff provided training to the U.S. Marine Corps Air Station in Yuma, and in July training was provided to the Ak-Chin Indian Community in Maricopa. The training sessions demonstrated the use of specialized equipment to conduct home energy audits. The audit includes reviewing utility bills, testing for leakage in a building's shell and duct system, and identifying other energy-consuming features. Once the energy consumption problems are identified, training gives participants hands-on experience on low-cost energy-saving measures. Savings are anticipated to be $200 per year per home, and often occupant comfort is improved. The lessons learned through training on existing homes can be applied to the specifications for new home construction. Funding for the training program is provided by FEMP.
Colorado
Colorado Weatherization Day Celebrated Along the Front Range and Western Slope
Energy $aving Partners, a program run by the Governor's Office of Energy Management and Conservation (OEMC) to weatherize homes of income-qualified Coloradans, along with two local weatherization agencies, Housing Resources of Western Colorado (HRWC) and Sun Power, Inc., raised overall energy awareness with "Colorado Weatherization Day."
The snowy weather brought timely attention to Colorado Weatherization Day, which was celebrated in Grand Junction and Denver on October 29 and 30. Television crews were eager for the weatherization demonstrations at each site.
Both agencies conducted a home energy efficiency demonstration at single-family homes. Technicians used computerized energy audits and advanced diagnostic technologies, such as blower doors, infrared cameras, and duct blasters, to determine the most cost-effective measures for the home. Additionally, health and safety conditions, such as carbon monoxide levels, were assessed. Weatherization services have been proven to reduce the average monthly energy bill by 15 to 30 percent.
The family in Grand Junction was grateful for the friendly staff and weatherization services. Last winter, the family's heating bills were as high as $400-$500 a month and still, the house was cold. The family is looking forward to lower bills and a warmer home. "We won't have to see our breath in the house," said the family.
Illinois
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The Illinois Department of Commerce and Community Affairs has held a number of energy workshops as part of its new Community Energy Program.
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Illinois Promotes Energy Efficiency While Building Communities
In cooperation with the United States Department of Energy's (U.S. DOE) Rebuild America Program, the Illinois Department of Commerce and Community Affairs (DCCA) has developed the Community Energy Program (CEP). The program provides a means by which Illinois communities can address energy efficiency strategies in their residential, commercial, industrial, and institutional sectors. Selected communities are awarded funds to create a two-year community-wide energy project, including employment of an energy coordinator. Twelve communities have participated in this program to date. DCCA hopes to include up to ten additional communities within the next year through another competitive process.
In addition to bringing energy efficiency and renewable energy-based technology to Illinois communities, CEP has also been successful in developing a network of business leaders, energy professionals, local government and state officials, teachers, students, utility representatives, and community members with the common goal of sharing ideas and information. Numerous meetings, workshops, and seminars have resulted from the dedication of the communities and their affiliates.
Minnesota
Minnesota State Energy Office Co-Sponsors Wind Conference
A consortium of government, non-profit, and private interests are planning a wind energy conference for Minnesota on Nov. 21 and 22 at the Minneapolis Convention Center. This conference is intended for utilities, government officials, elected officials, wind energy developers, citizens, landowners, entrepreneurs, and educators - just about anyone with an interest in wind energy will find a place at this conference. There are four tracks: Advancing Minnesota's Renewable Energy Objective, Economic Development, Community-Based Wind, and Citizen and Landowner Workshops. To register, for more information, or to sponsor or exhibit at the conference visit Windustry or call 612.870.3462, info@windustry.org.
Missouri
Energy Center Demonstrates Advanced Building Technologies and Performance
The Missouri Department of Natural Resources' Energy Center has opened the Discovery Center, a new urban outreach facility located in Kauffman Legacy Park in Kansas City. The Discovery Center will demonstrate energy-efficient lighting and glazing as well as three different types of photovoltaic systems. The Discovery Center includes a solar aquatic wastewater treatment facility to treat wastewater from the buildings. A ground source heat pump system provides heating and cooling for the sustainable-designed building.
Outreach staff will provide educational programs for the overall environmental performance of the facility, including the glazing and photovoltaic systems. The program will use several approaches: an interpretive tour of the landscape and facility, information at key components in the facility, and take-home information for teachers and visitors. Information will include energy saved, pollution avoided, and the environmental benefits of more efficient, sustainable design and construction strategies.
Governor's Office Building:
The Missouri Department of Natural Resources' Energy Center and project partners (Missouri Public Service Commission, Office of Public Counsel, Office of Administration's Design and Construction, and AmerenUE, a Missouri regulated utility) joined efforts to install a photovoltaic electric system on the Governor's Office building in Jefferson City. A real-time display of the array's electrical generation is located in the building lobby with technical and other information regarding the benefits of alternative and renewable energy resources.
North Carolina
North Carolina Hosts EnergySmart Schools Conference
DOE's EnergySmart Schools program participated in the First Annual North Carolina EnergySmart Schools Conference, in Chapel Hill, on October 8. The conference addressed best practices for reducing energy consumption in schools while improving the learning environment. Staff from EnergySmart Schools and the North Carolina State Energy Office also discussed their resources available to assist K-12 schools in reducing energy costs. The North Carolina State Energy Office and the National Energy Education Development Project are conference co-sponsors.
Ohio
Conference Focuses on Small-Scale Wind Development in Ohio
Green Energy Ohio has teamed up with the Ohio Development Department and the U.S. Department of Energy to organize a conference on wind power in Ohio. The forum and trade show will be at the Northwest Conference Center in the Columbus suburb of Dublin, on November 18 and 19. The forum and trade show will feature experts on small wind power systems, especially "backyard" wind turbines. The $25 conference fee includes lunch and an Ohio Power Toolkit that will assist participants in installing a small wind system. On November 14, a small wind turbine will be dedicated at the nearby Glacier Ridge Metro Park, followed by a reception and exhibit opening at the Northwest Conference Center. For more information and to register, visit Green Energy Ohio, a non-profit organization dedicated to promoting environmentally and economically sustainable energy policies and practices in Ohio.
Pennsylvania
Energy and Pollution Prevention Grants Awarded
The Pennsylvania Department of Environmental Protection's (DEP) Office of Pollution Prevention and Compliance Assistance, which serves as the state's energy office, has just announced the recipients of $1.7 million in energy and pollution prevention grants. DEP received more than 175 applications that requested $18.3 million in funding, and had $27.3 million in additional matching funds. Winning projects covered topics as diverse as using water from coal-mining discharges to power hydroelectric generating units, using green-building techniques in the construction of low-income townhouses, and installing variable-speed pumps on milking machines on dairy farms.
The awards represent a unique collaboration between the DEP and U.S. DOE's Philadelphia regional office. Through this effort, the DEP combined its State Energy Plan funds with other federal and state funding to create a broad-based solicitation. The solicitation, Pennsylvania Environmental and Energy Challenge (PEEC), sought projects in the areas of climate change mitigation, ground level ozone mitigation, sustainable use of natural resources, biological diversity, and toxics reduction in the environment.
Tennessee
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An alternative fuel vehicle in Tennessee. |
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Coalitions Foster Alternative Fuels, Seek Clean Cities Designation
Two Tennessee cities are seeking designation from DOE as Clean Cities. The Energy Division of the Department of Economic and Community Development is initially funding the Clean Cities efforts. Through coordination and hard work, these programs hope to bring diverse parties together, foster cooperation, and create broad public awareness to build a sustainable alternative fuel market that will enhance energy security and air quality. Clean Cities of Middle Tennessee is based in Nashville, and the East Tennessee Clean Fuels Coalition is located in Knoxville. These coalitions have recruited a large group of members from different organizations working on projects. Some of the most recent projects in Clean Cities of Middle Tennessee include: the partial conversion of the Nashville Electric Service fleet from diesel to biodiesel (B20) and the conversion of all Middle Tennessee State University's campus buses and shuttles to alternative fuel.
The East Tennessee Clean Fuels Coalition has worked with several entities to purchase alternative fuel vehicles. The Knoxville Area Transit has funding to purchase six 12-15 passenger dedicated propane vans. Sevier County is working on a Bus Rapid Transit System. The coalition is obtaining the necessary information for leasing a propane/gasoline bi-fuel Ford F-150 for use at the 2003 AFV Day Odyssey, and Earth Fest 2003. For more information, visit Clean Cities of Middle Tennessee and East Tennessee Clean Fuels Coalition.
Texas
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Students at Maplewood Elementary School in Austin, Texas pose in front of a Texas Solar-for-Schools banner.
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Texas Solar-for-Schools Project Teaches Children About Energy
The Texas State Energy Conservation Office (SECO) is teaching elementary school children and their parents about solar energy through its Solar-for-Schools project. SECO used funds from a State Energy Program grant from DOE and in-kind contributions from school districts to install solar systems on 11 elementary schools across the state. The office also provides training to teachers at the schools and posts lesson plans on the Internet. For more information, see SECO's Schools and Local Government Energy Program.
State Energy Information
New state Web sites and publications, and DOE pubs dealing with energy efficiency and renewable energy in the states.
FEDS 5.0
DOE's Pacific Northwest National Laboratory released the latest version of its powerful, versatile, and easy-to-use energy efficiency analysis program. This version includes new retrofit cost and performance data and a new lighting input fixture selection filter. Free copies are available to managers of federal- and state-owned facilities
FEDS 5.0
DOE's Pacific Northwest National Laboratory released the latest version of its powerful, versatile, and easy-to-use energy efficiency analysis program. This version includes new retrofit cost and performance data and a new lighting input fixture selection filter. Free copies are available to managers of federal- and state-owned facilities
Innovation, Renewable Energy, and State Investment: Case Studies of Leading Clean Energy Funds
DOE's Lawrence Berkeley National Laboratory publishes 21 case studies about states with clean energy funds. Those funds are expected to be $3.8 billion between 1998 and 2010 for investment in renewable energy and energy efficiency. This report summarizes program and administrative practices among the 15 states with clean energy funds. See also: www.cleanenergyfunds.org
Americans' Low Energy IQ: A Risk to Our Energy Future
(PDF 743 KB)
America needs a refresher course on energy management and conservation, according to a new study by the National Environmental Education & Training Foundation. The report suggests that a lack of knowledge about energy in America wastes fuel and money and puts our energy security at risk. The report finds that 88 percent of adult Americans get a failing grade on a simple multiple-choice test of basic energy knowledge and just 1 percent have a high level of basic knowledge. Source: Smart Communities Network News; August, 2002.
State Energy Web Sites
The Energy Delivery Process
The Minnesota Department of Commerce publishes this fact sheet about how energy is delivered to your home; 5 pp.