CO2 to EE

Leveraging Cap-and-Trade to Expand California’s Energy Efficiency Financing Market
Model Description

CO2toEE would substantially increase funding for deep energy efficiency investments in California’s buildings by providing a mechanism to allow buildings and building owners (including businesses, schools and cities) to participate in the state’s Cap-and-Trade market. California’s February 2014 Report on the state’s climate change progress urges California to, “collaborate with the real estate and property management industries in crafting aggressive but practical solutions for achieving high penetration of efficiency upgrades to all existing buildings” (P 43-44). CO2toEE, partly developed by and broadly endorsed by California’s major real estate and property management groups, exactly meets this objective.


As the Report notes, “California’s Cap-and-Trade regulation is purposely designed to leverage the power of the market in pursuit of an environmental goal” and further that “the Cap-and-Trade program works in concert with many of the direct regulatory measures—providing an additional economic incentive to reduce emissions” (P 93-94). CO2toEE would help California achieve its global warming objectives more efficiently and cost-effectively through its Cap-and-Trade market.


California’s innovative Cap-and-Trade Program currently does not allow building owners and businesses to receive the value of the CO2 reductions that result from their efficiency investments. Today, businesses, building owners, cities or schools investing in energy efficiency achieve two valuable objectives – cutting energy consumption/costs, and reducing CO2 emissions. But under current Cap-and-Trade rules, these EE investors receive the financial value of only one of these benefits – lowered energy costs. With the adoption of CO2toEE, the Cap-and-Trade market can be harnessed to reward energy efficiency investors with the value of the associated CO2 reductions.


With CO2toEE in place under California Energy Commission or Public Utility Commission supervision, qualified energy firms would review and aggregate energy efficiency investments in hundreds or thousands of buildings and then sell the associated CO2 reductions into the Cap-and-Trade market. These revenues (minus a fee) would be returned to the building owners. By shifting ownership of CO2 to EE investors, CO2toEE would have ~10X larger impact in driving EE than status quo.


CO2toEE can help harness the power of the Cap-and-Trade market to enable California’s innovation engine. Without continued investments in innovative energy efficiency technologies and services, California, the entire U.S., and the rest of the world would be handicapped in their long-term efforts to slow climate change.

Sponsoring Organizations
Data Sources for Key Assumptions

CO2toEE modelling builds on several assumptions. These assumptions are intended to be reasonable but necessarily involve some judgment. The following are key assumptions, comments and references.

1) 20% average energy efficiency retrofit savings : See:

2) $1.60/ft2 investment for simple 4 year payback for a commercial retrofit. Assumes initial $2/ft2 energy use. LBNL study based on several hundred projects found a commercial retrofit cost of $1.40/ft2, or about $1.60/ft2 inflation adjusted. See:

3) Energy efficiency costs increasingly include not just energy saving measures but also deferred maintenance. That is, costs for energy efficiency projects –especially school retrofits –  are increasingly burdened with deferred maintenance projects.  See:  Because these deferred maintenance costs are bundled into retrofit projects it increases the retrofit costs and cost/kwh or therm saving. This is reflected in rising average per project cost of energy efficiency investments over the last decade.

4) Cost estimates of energy efficiency achieved by utility programs varies a lot, but $0.04/kwh seems like a reasonable median estimate. See: “Cost-Effectiveness of Electricity Energy Efficiency Programs,” and “Saving Energy Cost-Effectively: A National Review of the Cost of Energy Saved through Utility-Sector Energy Efficiency Programs and

5) A multi-agency federal review of the social cost of carbon released May 2013 provided an estimate of the value of the social cost of carbon, revised up from $26/ton to $43/ton. See: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis  and