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7 August 2009
SRI-Advisor: Efficiency Measures Can Play Major Role in Reducing US Greenhouse Gas Emissions
Source: www.sri-adviser.com

Two new reports find considerable potential in energy efficiency for significant reductions in US greenhouse gas emissions, and that cost savings should far outweigh the price of implementation.

According to a recent report by McKinsey & Company, a comprehensive national approach to energy efficiency would lead to energy savings of $1.2 trillion by 2020. Identifying energy efficiency as "an emissions-free energy resource," the report forecasts an abatement of greenhouse gas (GHG) emissions of 1.1 gigatons per year, "the equivalent of taking the entire U.S. fleet of passenger vehicles and light trucks off the roads." The McKinsey report found that these savings could be accomplished with a ten-year investment of $520 billion. 

The report also found that introducing a carbon price of $50 per ton of CO2 emissions would increase savings by an additional 13%. 

A second recently published report, from the American Council for an Energy-Efficient Economy (ACEEE), analyzes the potential benefits of energy efficiency in light of the proposed federal climate policy found in the American Clean Energy and Security Act of 2009, commonly known as the Waxman-Markey Bill, which passed the US House of Representatives on June 26. The ACEEE report found that investment in energy efficiency could provide up to one-half of necessary GHG emissions reductions by 2050, and cost savings of about $2 trillion by 2050. 

The McKinsey report, entitled Unlocking Energy Efficiency in the U.S. Economy, found that energy efficiency measures have contributed to reduced energy consumption since 1980 of 11% per unit of residential floor space and 21% in commercial sectors. During the same time, the cost of industrial energy consumption has decreased by 41%. 

If what McKinsey describes as "significant barriers" to a comprehensive energy efficiency program were removed, potential end-user efficiency savings could be distributed as follows: 35% in the residential sector, 40% in the industrial sector, and 25% in the commercial sector. 

The significant barriers to implementing a program of energy efficiency cited by McKinsey in its report include the requirement of an outlay of $520 billion in order to realize maximum savings; the fragmentation of potential across more than 100 million locations, thereby ensuring that "efficiency is the highest priority of virtually no one"; and the difficulty of measurement, which impedes investor confidence. 

The report provides examples of solutions to overcome such barriers, including increased awareness of energy usage and knowledge of the financial benefits of energy savings, incentives and financing initiatives such as tax credits and carbon pricing, better equipment standards and building codes, and third-party involvement in supporting implementation of energy-efficient measures. 

The McKinsey report recommends the incorporation of five aspects into a national program of energy efficiency. Energy efficiency must be recognized as an important energy source of that can help the US meet its energy needs while low-carbon technologies are being developed. An integrated approach to energy efficiency must be formulated and launched at both national and regional levels. 

Methods of funding must be identified to meet the significant upfront investment. According to the report, the entire upfront cost of $520 billion could be recovered by a slight increase in the cost of energy to consumers. The 8% increase in consumers' utility bills would be more than offset by the 24% savings that would be realized through energy efficiency measures. 

Finally, forging collaboration among all stakeholders in a national energy efficiency program will be critical to its success, and innovation in new energy efficient technologies must be encouraged. 

The ACEEE report, entitled The Positive Economics of Climate Change Policies: What the Historical Evidence Can Tell Us, argues that "energy efficiency is a substantially larger and more cost-effective resource than most economic policy models now acknowledge." 

As opposed to the policy outcome of Waxman-Markey as modeled by the Environmental Protection Agency (EPA) and others, which forecasts a decline in the nation's Gross Domestic Product (GDP), the ACEEE analysis finds that if energy efficiency measures are included, a small but net positive gain in the nation's GDP would result. 

Furthermore, according to the ACEEE report, a focus on investment in energy-efficiency technologies could lead to increased employment opportunities in the US. 

The conclusions of the ACEEE report were based on an analysis of historical data, which finds that despite the tripling of the economic output of the US since 1970, the demand for energy and power resources grew by only 50% during that time. The report argues that such a significant reduction of energy usage has occurred despite a "haphazard and often counterproductive approach to energy efficiency and energy policy." 

The reduction of energy usage since the 1970s is attributable, according to the report, to not only more productive technologies, but to more informed behaviors and a more dynamic market. 

A more productive pattern of investment in technologies focusing on innovation and energy efficiency, the report concludes, could enable the US economy to substantially reduce GHG emissions while enjoying a small but net positive impact on the national economy.

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