Energy Stimulus Could See Lower Returns

When Congress agreed earlier this year to shell out $3.1 billion in stimulus dollars to help states reduce energy consumption, it expected a major return on its investment. Since the 1970s, every federal dollar sent to states through the U.S. Department of Energy’s State Energy Program has produced more than $7 in energy savings – a perfect opportunity for quick stimulus results.

While Congress anticipates this nearly 70-fold funding increase, up from just $44 million last fiscal year, to save governments, consumers and businesses about $22.3 billion, experts are beginning to doubt that math. They argue that the new State Energy Program money, more than $964 million of which has been sent to the states since May, is likely to generate much lower returns because of the program’s historically loose enforcement and oversight.

At issue is a condition in the recovery act that asks governors to guarantee their states will adopt the latest building energy standards in 90 percent of new and renovated buildings by 2017. Although every state governor except one has submitted a letter assuring compliance, the codes are typically the responsibility of state lawmakers or local officials, so governors cannot promise their states will approve the new rules.

Neither can the federal government. While states have eight years to upgrade their codes, the Department of Energy has only until September 2010 to distribute its stimulus money. That means most, if not all, of the State Energy Program’s recovery funds could reach states long before any of them actually revise their building standards.

“Punishments are not appropriate in the stimulus because you need to use the funds right away,” said Jeff Genzer, general counsel at the National Association of State Energy Officials , adding that states have every intention of following federal rules. “Compliance is going to be a tough thing; there’s no question about it.”

Already, the code upgrade requirements have triggered serious political debates in a number of states. On one hand, builders insist the codes – which govern the kinds of insulation, heating and cooling systems and light bulbs they install – raise construction costs, and thus, a building’s market price. Yet, conservationists and energy officials counter that the upgrades actually combat the sticker shock. Buildings account for 40 percent of all energy use, so tightening the standards would lower consumers’ monthly bills while helping the environment – two of the Obama administration’s top goals.

“Building codes are one piece of the energy efficiency puzzle,” Genzer said. “If the average market family spends a few thousand a year (on energy bills), and you can reduce that a few hundred each year, you’re essentially giving people a second stimulus.”

But states have been lukewarm to the proposed upgrades. Although every state except Alaska has submitted the required assurance letter, only California has implemented commercial and residential standards on par with what the stimulus mandates, according to the Building Codes Assistance Project (BCAP), an advocacy organization. The state made the revisions in April 2008 – long before the recovery act called for it.

Other states lag behind, many by several code versions. Eight states have yet to implement commercial energy rules, and 11 have declined to do so for residential buildings, leaving local jurisdictions in charge. And one of those states – Alaska – has altogether refused to make any such changes. There, Gov. Sarah Palin (R) declined almost $29 million in stimulus cash because she believed the code mandate constituted a tax on homeowners, she said in a letter to the Department of Energy.

Even for those states that have assured swift code revisions, the outcome is far from guaranteed. In Arizona, for instance, home rule allows local governments to set their own residential energy standards. Nineteen of the state’s 32 jurisdictions have the 2006 residential code in place, the most recent precursor to the 2009 code the recovery act specifies. The rest require the 2003 version, and one jurisdiction relies on the 2000 guidelines, according to Charlie Gohman, manager of the Building Science and Efficiency Program at the state’s Commerce Department.

Colorado, too, gives local governments the power to set their own building codes. However, the state legislature can set a baseline standard- currently a 2006 code for residential buildings, which went into effect last year. Whether the state’s General Assembly intends to raise its standard and force its locales to comply with the recovery act remains unclear.

“The (Governor’s Energy Office ) plans to work with local jurisdictions providing the resources and incentives to move them forward in regards to energy codes,” said Todd Hartman, the office’s spokesperson. “Although (energy efficiency) is a top priority of Gov. (Bill) Ritter, he also respects the rights of local jurisdictions.”

In these states, and others facing similar struggles, the federal government is unlikely to compel local governments to act swiftly. For one thing, the Department of Energy’s stimulus timetable is ambiguous. The first two checkpoints, which states must pass to receive the first half of their new green-energy greenbacks, include no mention of building codes, beyond requiring the governors’ letters promising compliance. The Department of Energy has yet to publish its second set of funding criteria.

“From the Department of Energy’s perspective, the key for states receiving money is the governor assurance letters that they are working to implement the new codes,” said Jen Stutsman, the department’s deputy press secretary.

Yet, tepid enforcement is hardly new to the State Energy Program. A 2006 audit of the federal government’s yearly program grants found that regional offices were not regularly monitoring whether states were spending their money appropriately, according to the inspector general’s report . Worse yet, auditors added that regional offices “had not established or collected meaningful performance metrics to determine the cost benefit of the Program in meeting its goals.”

A follow-up report issued in March 2009 echoed those concerns, identifying the State Energy Program as a stimulus risk area – one of many Department of Energy programs that have been previously scrutinized for lax accountability or management. The Inspector General recommended at the time that the department establish better metrics for success and means of enforcement.

Despite these oversights, state energy departments are working closely with local officials on code upgrades, and they have every intention of complying with the recovery act, Genzer said. States are also anticipating $5 billion additional stimulus dollars by way of the weatherization program, which offers energy assistance to low-income families to insulate their homes, and $3.2 billion through the Energy Efficiency and Conservation Block Grant program, which offers competitive awards to states and locales to decrease their energy consumption, he added.

Still, while these stimulus programs are likely to reduce energy use even in states that keep their archaic building standards, experts say that the level of savings promised by the Department of Energy is impossible unless states make the tough code revisions required by the recovery act.

“States are very far behind, especially with compliance, and offering them funding to get it together is an excellent strategy,” said Aleisha Khan, BCAP’s executive director. “But there does need to be follow up and accountability.”