A related problem is that decisions about new power plant capacity, environmental quality, solid waste management, local economic development and other critical issues tend to be made separately rather than in an integrated fashion. When the environment, energy and economic development are approached through integrated community energy planning, the benefits of district energy systems are apparent.
Recommended Actions
1. Foster implementation of district energy systems and other sustainable development approaches through information and education programs which:2. Through the Climate Challenge program and other programs directed toward utilities, increase awareness of district energy and urge implementation of district systems, particularly those using cogeneration, as beneficial for national energy and environmental goals generally and climate change strategy particularly.
- help local officials and stakeholders integrate environmental considerations with energy infrastructure planning and economic development objectives;
- increase awareness of the energy, environmental and economic benefits of district energy; and
- develop local knowledge and expertise on how to develop district energy systems.
The governments of other countries are aggressively moving to promote goods and services in the international district energy marketplace. Interest in district cooling is growing significantly, and will become increasingly important as worldwide electricity demand grows. The U.S. is a leader in district cooling, and has an opportunity to export technologies and expertise for international development of district cooling systems.
Recommended Action
3. Continue U.S. participation in the International Energy Agency district energy program.
First, the "ripple effects" of district systems are ignored. District energy systems eliminate many small facilities which are usually inefficient and generate high emissions per unit of energy provided. Strict emission controls are placed on the central plant, but the community emission reductions are not recognized in the permitting process or in the marketplace.
Second, cogeneration or other efficient new facilities represent a significant improvement in environmental performance compared to the capacity displaced. But there are no mechanisms to credit new plants for these pollution reductions, with the result that cleaner technology is often delayed or blocked.
Third, environmental performance is measured against fuel used rather than useful energy provided. Regulations limit pollutant parts per million in the exhaust gas per amount of fuel burned. This provides no incentive to produce more usable energy with each unit of fuel burned through technologies such as cogenerated district energy.
Proposed systems for emissions trading have the potential to provide some recognition of the environmental benefits of district energy. However, such programs are still under development and near-term plans generally are to apply this approach only to nitrogen oxides and volatile organic compounds (which produce smog). In addition, such programs must be structured so that the community-wide air quality benefits of district energy are recognized.
Recommended Actions
4. Expand implementation of emissions trading pro-grams, broaden their use to other types of pollutants, and ensure that these programs are designed to address emission reductions achieved through district energy.5. Evaluate how air quality regulation can be shifted toward "output based" standards, i.e., regulation on the basis of pounds of emissions per unit of total useful energy output (electricity, heating and cooling).
Despite the long-term benefits of district energy -- lower operating costs, locally retained economic benefits, increased energy security, higher energy efficiency and reduced environmental impacts -- initial capital costs and the time and risks associated with developing a mature system are significant constraints.
Because the initial capital costs are high, a new district system or expansion of an existing system is burdened by high debt service costs in the early years, before a broad base of customers has been connected to the system. As a result, it is often difficult to finance these systems, despite their long-term benefits to their communities and the environment.
Many of the benefits of district energy are "externalities," i.e., they are external to the complex system of marketplace signals to which utilities and other businesses must respond. The marketplace is an extremely effective system, but it is not perfect: the prices of goods and services do not always reflect the true cost of producing those goods and services.
For example, when pollution creates health problems, environmental regulations attempt to shift some of the costs of these problems to the generators of the pollution (and/or their customers).
How to best "internalize" these "externality" costs is a complex matter. A key theme in the recent debate about the U.S. tax code was the need to encourage investment and discourage consumption. It is critically important that this need is addressed, particularly as it applies to consumption of environmental resources.
Recommended Action
6. Change depreciation schedules or other elements of the tax code to encourage investments in energy infrastructure which increase energy efficiency, reduce air pollution, reduce emissions of greenhouse gases and ozone-depleting chemicals and increase energy security.
Recognizing the potential federal role as building owners, the Congress required, in the Energy Policy Act of 1992, an evaluation of constraints to connecting feder-al buildings to district energy systems and development of a streamlined process for consideration of such connections. The report is expected to be finalized in 1996.
In addition, the federal government, particularly the Department of Defense, owns and operates a significant number of district energy systems and power plants. Many of these federal energy facilities urgently need upgrading due to aging or because of new environmental or energy efficiency requirements. These facilities represent a significant opportunity to save energy and reduce pollution through facility upgrades or by implementing cogeneration. However, government budget limitations will constrain the ability to take advantage of these opportunities unless mechanisms are established to facilitate private investment in federal energy facilities.
Recommended Actions
7. Establish clear and strong federal, state and local government policies encouraging use of district energy in government buildings.8. Implement new mechanisms to facilitate and expedite private investment in energy facilities to serve the energy needs of the Department of Defense and other federal agencies.