Should the United States Create Trading Markets for Energy Efficiency?

Date01 June 2016
Should the United States
Create Trading Markets
for Energy Eff‌iciency?
by Noah M. Sachs
Noah Sachs is a Professor at the University of Richmond School of Law and Director of the law school’s Robert R.
Merhige Jr. Center for Environmental Studies. He writes frequently about climate change and energy eciency.
For over 30 years, the United States ha s deployed an
eective set of policies to promote energy eciency,
including appliance standards, information disclo-
sure requirements, auto fuel economy standards, build-
ing codes, and ta x rebates. From 1980 to 2014, the energy
intensity of t he U.S. economy (that is, the energy needed
to produce one dollar of gross domestic product (GDP))
declined by about 50%— a remarkable success story.1
Energy eciency policies and technologies were respon-
sible for a substantial portion of that decline.2
Climate and energy experts are now calling for the
near-complete decarbonization of t he U.S. economy by
the middle of the century,3 raising the question of whether
the old policy tools to promote energy eciency are up to
the task.
Some analysts have suggested that the United States
could achieve dramatic breakthroughs in energy eciency
by packaging energy savings into a tradable commod-
ity called an energy savings certicate (ESCert). In this
market-based approach to energy eciency, companies
would pa rticipate as buyers or sellers of ESCerts, just as
companies now trade carbon dioxide emissions allow-
ances, wetla nds acreage, a nd shing quotas. e goal
of these ma rkets is to incentivize companies to invest in
energy-ecient equipment and practices that t hey mig ht
otherwise overlook, reducing U.S. greenhouse gas (GHG)
emissions in the process.
Other countries have already embraced energy eciency
trading markets. In 2012, India launched a market involv-
ing energy-intensive industries such as steel, aluminum,
and cement. When ESCert trading begins later this year
1. See S N  ., A C  E E
E., E E   U S: 35 Y  C-
 iv (2015) (estimating that energy eciency improvements were respon-
sible for about 60% of the decline in energy intensity and that structural
shifts in the economy were responsible for the remainder of the decline).
2. Id.
3. See, e.g., J W  ., S D. S N,
P  D D   U S T
R xii, xiv (2015), available at
in India, it will become the largest market-based environ-
mental program in the developing world. France and Italy
were pioneers in this new k ind of environmental market,
launching programs over a decade ago to improve residen-
tial and commercial energy eciency.
ESCert trading has never caught on in the United
States, but these markets nonetheless have an enthusias-
tic group of advocates. Energy policy analysts have called
ESCert trading a “breakthrough plan”4 that can “unlock
energy saving potentials”5 and serve as a “market-based and
credible accounting instrument” to achieve climate change
goals.6 e think ing is simple: If we can put a price on
energy savings and make it a tradable commodity, rms
will innovate to nd every available opportunity to save
fuel and electricity.
is Comment examines whether the vision for energy
eciency markets matches the reality. It explains how
energy eciency markets work, exami nes t he ha ndful
of energy eciency markets that have been established
to date, a nd explore s the policy challeng es inherent in
commodifyi ng energy eciency and m aking it a trad-
able good.
Ultimately, I conclude that the high expectations for
energy eciency markets are unlikely to be met on the
ground. e markets wil l likely play only a minor role in
greening U.S. energy demand.7 Programs in other coun-
tries have high transaction costs and encounter persistent
problems involving energy-savings measurement, target-
setting, governmental oversight, and ensuring the addi-
4. Lisa Margonelli, , W. P, Feb.
9, 2007, dyn/content/article/2007/
5. EWC P, W C: C  M
E 1 (undated), available at
6. Edward Vine & Jan Hamrin, Energy Savings Certicates: A Market-Based
   , 36 E P’ 467, 474
7. See Noah Sachs,    
, 19 D E. L.  P’ F. 295 (2009).
Copyright © 2016 Environmental Law Institute®, Washington, DC. Reprinted with permission from ELR®,, 1-800-433-5120.

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