Clean Energy and the Economy: Assessing the Many Benefits of State and Local Clean Energy Initiatives

Multiple Benefits of What are the economic benefits of Clean Energy Initiatives clean energy? Reducing energy demand and increasing renewable energy generation from state and local clean energy Clean energy initiatives, including those that advance energy efficiency, initiatives—such as goals, standards, codes, funds, and renewable energy and clean distributed generation can: programs—generate many benefits including: ■■Lower energy costs. ••Security, diversity, and overall reliability ■■Increase personal disposable income. improvements for the electric system. ■■Increase revenue for businesses. ••Improved environmental quality, human health, and quality of life. ■■Increase income, employment, and output. ••Increased economic prosperity. ■■Reduce fuel costs and new electric power plant construction costs. This brochure is part of a series and focuses on ■■Reduce health care costs as a result of better air quality and economic benefits. public health.

How do clean energy initiatives benefit What’s Inside: • Why assess the economic benefits of the economy? clean energy? • How can policy makers estimate ■■Direct Economic Benefits: Companies that provide the equipment, technologies, the macroeconomic benefits of and services needed to implement an initiative benefit from increased demand, clean energy? which increases their revenue and their ability to hire more people. In the case of • A Benefits Flash with quantitative energy efficiency, consumers and companies both benefit by spending less money examples of how clean energy on electricity. initiatives result in economic, air quality, and public health benefits. ■■Indirect Economic Benefits: Suppliers to clean energy equipment and service • Where to go for more information. providers benefit as demand for their inputs and revenues increase. With higher demand, these suppliers may also hire more workers. ■■Induced Economic Benefits: Income generated from the direct and indirect effects is spent in the regional economy, such as when employees use their paychecks to buy groceries, eat out, and entertain themselves, all of which support jobs in those sectors.

Direct economic Indirect economic benefits Induced economic benefits of a wind initiative benefits of a wind of an increase in production could enhance: initiative could increase: of wind turbines could raise: • Sales of groceries or entertainment in the towns • Sales of wind turbines. • Sales of steel to supply the where turbine assembly workers live. • Revenue of local turbine manufacturers. • Revenue for local businesses, such as restaurants, turbine manufacturers. • Revenue of supplier stores, and movie theaters, in the towns where • Manufacturing jobs companies. turbine assembly workers live and spend their money. at the local turbine • Jobs of workers who • Jobs for workers at local establishments that expand manufacturing plant. supply materials to the or open because turbine assemblers create increased turbine assemblers. demand for their products and services. Why assess the economic benefits of clean energy? Clean energy can be as cost-effective as ■■Comprehensively assess the full value of ■■Build support for their clean energy other energy options, while also delivering clean energy investments. initiatives among state and local important electric system, environmental, ■■Strengthen how benefits are incorporated decision makers. and economic benefits. Typically, however, in cost-benefit analyses. ■■Identify other opportunities where the benefits of clean energy are not as well meeting today’s energy challenges quantified as the costs. ■■Demonstrate how clean energy can help achieve economic development goals, can also serve as an economic By quantifying the economic benefits of including creating and retaining jobs. development strategy. clean energy initiatives, policy makers can: How can policy makers estimate the macroeconomic benefits of clean energy? States and locals can follow these ■■Basic approaches provide relatively ■■Sophisticated approaches provide more basic steps to analyze the actual or simple approximations of the economic detailed analysis of the macroeconomic potential macroeconomic benefits of feasibility and impact of clean energy effects of clean energy initiatives clean energy initiatives: initiatives. They provide quick and can be carried out after a list of estimates of employment, price, and potential initiatives has been narrowed Step 1: Determine the method output changes and are appropriate down. Sophisticated modeling of analysis, the desired level of when considering broad economic approaches include: rigor, and the required level of impacts of proposals or conducting −−Input-output models detail about geographic and a preliminary analysis. Examples of easy-to-use approaches or tools include −−Econometric models industrial sectors. rule-of-thumb estimates, such as those −−Computable general Policy makers can use basic approaches that say “for every dollar spent on equilibrium models energy efficiency, X jobs are created” or sophisticated analyses to estimate the −−Hybrid economic models economic effects of clean energy initiatives: (see examples in table below). When choosing which methods to RULES OF THUMB FOR ESTIMATING INCOME, OUTPUT, AND EMPLOYMENT IMPACTS use, states and locals should consider OF CLEAN ENERGY ACTIVITIES many different factors, including time Rule of Thumb Source constraints, cost, data requirements, internal staff expertise, and overall TYPE OF IMPACT: Income/Output flexibility and applicability of the methods. 1 MW of wind generated requires $1 billion investment in wind REPP, 20051 generator components. Step 2: Quantify the direct costs $1 spent on concentrated solar power in California produces Stoddard et al., 20062 for and savings expected from $1.40 of additional GSP. the clean energy initiative. $1 spent on energy efficiency in Iowa produces $1.50 of additional Weisbrod et al., 19953 disposable income. For initiatives affecting energy demand, $1 million in energy savings in Oregon produces $1.5 million of Grover, 20054 such as those related to energy efficiency, additional output. direct costs and savings include: TYPE OF IMPACT: Employment ■■Household and business expenditures: $1 million in energy savings in Oregon produces about $400,000 Grover, 20054 dollars spent by businesses and households in additional wages per year. for purchasing and installing equipment. $1 billion investment in wind generator components creates 3,000 REPP, 20051 ■■Program administrative costs: dollars full-time equivalent (FTE) jobs. spent running the program, including $1 million invested in energy efficiency in Iowa produces Weisbrod et al., 19953 labor, materials, and paying incentives 25 job-years. to participants. (*When examining the $1 million invested in wind in Iowa produces 2.5 job-years. Weisbrod et al., 19953 funding source for program costs, such $1 million invested in wind or PV produces 5.7 job-years vs. 3.9 Singh and Fehrs, 20015 as consumer surcharges or government job-years for coal power. revenues, policy makers should consider 1 GWh of electricity saved through energy efficiency programs in NYSERDA, 20086 the impact of diverting funds from other New York yields 1.5 sustained jobs. consumer spending or projects.) $1 million of energy efficiency net benefits in Georgia Jensen and Lounsbury, 20057 ■■Energy cost savings: dollars saved by produces 1.6-2.8 jobs. businesses and households resulting 1www.repp.org/articles/static/1/binaries/Ohio_Manufacturing_Report_2.pdf 2www.nrel.gov/docs/fy06osti/39291.pdf from reduced energy costs (including 3www.edrgroup.com/library/energy-environment/iowa-energy.html 4www.oregon.gov/ENERGY/CONS/docs/EcoNW_Study.pdf 5www.repp.org/articles/static/1/binaries/LABOR_FINAL_REV.pdf 6www.nyserda.org/pdfs/Combined Report.pdf electricity, natural gas, and oil cost 7www.gefa.org/Modules/ShowDocument.aspx?documentid=46 savings), potentially reduced repair Step 3: Quantify the Benefits Flash and maintenance costs, deferred macroeconomic impacts created equipment replacement costs, and by those costs and savings. increased property values resulting A Utah Clean Energy analysis of the Together, the direct costs and savings of net economic effects on the State of from the new equipment. Utah if it were to achieve a 20 percent initiatives shift economic activity among ■■Sector transfers: increased flow of increase in energy efficiency by 2015 participants, resulting in direct, indirect, and dollars to companies that design, and 20 percent of electricity sales from induced impacts on income, employment, renewable resources by 2020 found that manufacture, and install equipment, and overall economic output such as: it would result in: and reduced flow of dollars to other energy companies—including electric ■■Increasing personal disposable income • Nearly 7,000 net new ongoing jobs in utilities—as demand for electricity and available for non-energy purposes by: the state by 2020; less-efficient capital declines. • $310 million in net new annual −−Reducing residential energy costs earnings; and Direct costs and savings of initiatives that through energy efficiency • $300 million net annual increase in affect energy supply, such as those related −−Reducing medical expenditures by gross domestic product by state (GDPS). to renewable energy generation, include: decreasing pollution-related illnesses For comparison, the Utah ski industry ■■Program administrative costs: dollars and deaths contributed about $440 million to state spent operating the initiative, including ■■Increasing commercial and utility revenue GDPS in 2008. labor, materials, and paying incentives available for non-energy purchases by Source: Knutsen, K., K. Wikstrom, M. Goldberg, and to participants. lowering energy and fuels costs. S. Wright, 2010. ■■Construction costs: dollars spent to ■■Increasing income, employment, and purchase and install the equipment, output by: In 2008, the Tennessee Department of costs of grid connection, and on-site Labor found that: −− infrastructure construction costs such as Reducing the outflow of resources • 40,000 direct, indirect, and induced buildings or roads. that leave the state when it imports electricity. jobs could be created throughout ■■Operating costs: dollars spent to the state from $1.9 billion invested in −−Stimulating production and sales of energy-efficient building retrofits, mass operate and maintain the equipment transit and freight rail, smart grid, and during its operating lifetime and any clean energy equipment by existing businesses within the state. renewables including wind and solar costs of production surcharges applied power and advanced biofuels. to consumers. −−Increasing the inflow of resources • Tennessee could gain 4,233 full- ■■Displacement savings: dollars saved that enter the state when it exports time jobs in wind and nearly 400 clean technology. in solar by 2015 with an accelerated by utilities from the displacement investment effort. of traditional generation, including −−Stimulating construction and reduced purchases (either local or operation of new clean energy-based Source: Tennessee Department of Labor and Workforce imports) of fossil fuels and decreased power facilities. Development, 2008. operation and maintenance costs from −−Improving competitiveness by lowering Massachusetts set a goal to achieve existing generation resources. the in-state cost of doing business. ■ greenhouse gas emissions levels ■Waste heat savings: dollars saved −−Expanding in-state markets for between 10 and 25 percent lower than by utilities or other commercial/ energy efficiency and attracting new 1990 levels. The state developed a plan to meet the limit and estimated that the industrial businesses using waste heat businesses and investment. in Combined Heat and Power (CHP) measures could: −−Increasing workforce productivity by applications for both heating and • Create around 42,000 to 48,000 jobs cooling purposes. decreasing pollution-related illnesses from the direct and indirect effects of and deaths. the policies Policy makers can develop a customized − approach based on their specific needs ■■Decreasing revenue for utilities in states − About 13,000 from transportation policies; and resources by adapting and projecting with energy efficiency initiatives that − results from existing initiatives in other reduce energy sales (absent a state policy − Approximately 23,000 to improve end use efficiency in buildings; and states or regions to their own conditions to “decouple” utility sales from revenues, or to otherwise compensate utilities for −−Between 6,000 and 12,000 from or by using more sophisticated modeling in-state demand for renewables. tools to estimate direct effects. lost revenues). • Reduce the amount of money that leaves the state for fossil fuel-based energy sources, which was valued at References: $18 billion in 2008. • Knutsen, K., K. Wikstrom, M. Goldberg, and S. Wright. January, 2010. Building the Clean Energy Economy: A Study on Jobs and Economic Development of Clean Energy in Utah. • Save business, residential, and municipal customers $6.3 billion in • Massachusetts Secretary of Energy and Environmental Affairs. December, 2010. energy costs annually. Massachusetts Clean Energy and Climate Plan for 2020. • Tennessee Department of Labor and Workforce Development. November, 2008. Source: Massachusetts Secretary of Energy and Growing Green: The Potential for Green Job Growth in Tennessee. Environmental Affairs, 2010. Where can state and local governments and policy makers go for more information about tools, methods, and resources available to estimate the benefits of clean energy initiatives? Assessing the Multiple Benefits of Clean Energy: A Resource for States, is an essential manual that can help you estimate and communicate the benefits of clean energy. While developed primarily for states, many of the tools and approaches discussed in the Guide are applicable for local governments as well.

What the Guide includes: ■■Benefits estimates that states have derived using the various methods. ■■A framework for determining which benefits to estimate and how. ■■Analyses that illustrate the use of multiple benefits to promote clean energy. ■■Tools and methods available for estimating energy systems and environmental economic benefits across ■■Case studies in each chapter that profile how states are varying levels of rigor. using the available tools to develop and implement clean energy policies and programs. ■■Easy-to-read tables that present the range of tools and approaches, their strengths and limitations, and suggestions on when to use them.

How the Guide is organized: − An overview of how the electricity system operates. − ■■Chapter 1 is an introduction to assessing the multiple Information on how to select which benefits to evaluate. benefits of clean energy; it highlights the relationships − Steps for estimating electricity system benefits. between energy savings and other benefits of clean − Descriptions and comparisons of basic and energy initiatives. Included in the chapter are discussions sophisticated forecasting methods and tools. of the multiple benefits of clean energy and how and why − Considerations for determining whether to analyze states should assess these benefits. the various benefits, who typically estimates the ■ specific benefits, and when the most effective time is ■Chapter 2 provides policy makers with methods they to undertake the analyses. can use to estimate the potential direct energy impacts of electricity-related clean energy initiatives and policies for ■■Chapter 4 helps agencies assess the greenhouse gas, air program planning, and includes: pollution, air quality, and human health benefits of clean energy options, and includes: − Steps to estimate energy impacts of clean energy. − Various methods to estimate air and health benefits. − Sample framework for developing energy forecasts. − Comparisons of different models and tools, including − Energy data sources. advantages and disadvantages, and when to use them. − Comparisons of basic and sophisticated forecasting − Data needs and data sources. methods and tools. ■■Chapter 5 presents simple to sophisticated methods and − Resources for retrospective data and potential studies. tools for assessing the economic benefits of clean energy − Available tools for estimating impacts. options so that states can: ■■Chapter 3 presents detailed information about the − Conduct and manage analyses. energy system to help policy makers understand how to − Review cost-and-benefit estimates. identify and assess the benefits of clean energy initiatives − Understand the potential job effects of clean on electricity systems based on their state’s needs and energy initiatives. resources. It includes: − Make recommendations about clean energy options and appropriate evaluation approaches and tools. Assessing the Multiple Benefits of Clean Energy: A Resource for States for A Resource Benefits of Clean Energy: Multiple Assessing the

How to access the Guide and get more information: • Assessing the Multiple Benefits of Clean Energy: A Resource for States Web site: www.epa.gov/statelocalclimate/resources/benefits.html • State and Local Climate and Energy Program Web site: www.epa.gov/statelocalclimate • State and Local Climate and Energy Listserv: www.epa.gov/statelocalclimate/listservs/index.html • Contact Information: Denise Mulholland • [email protected] • 202-343-9274