Americans Waste $130 Billion a Year on Energy

Americans Waste $130 Billion a Year on Energy

Our houses leak, our light bulbs produce more heat than
illumination, our big screen TV sets draw power when they are turned
off, and that’s just the start of it.

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U.S. businesses and individuals could save money, curb emissions of
global warming pollutants, reduce our dependence on foreign oil and cut
energy consumption by 23 percent by 2020, merely by taking sensible, practical
steps to use energy more efficiently, says a report from McKinsey & Company released today.

What's more, energy efficiency is the very best way to create
so-called green jobs -- yes, even better than subsidizing solar or wind
power -- because it makes the economy more productive in the long run.

So what’s standing in the way?

Unfortunately, there are lots of barriers to more efficiency -- some
structural, some behavioral and some stemming from a lack of access to
capital–and so there is no simple or single program that will get us
where we need to go, according to Ken Ostrowski, a senior partner at
McKinsey who led the effort behind the report, called "Unlocking Energy Efficiency in the U.S. Economy."
Indeed, that’s part of the problem. For a variety of reasons, market
forces on their own don’t work very well when it comes to energy
efficiency.

"Energy efficiency, by its nature, is quite challenging to capture,"
Ostrowski told me by phone last week. "Part of this is the heavy
fragmentation of the opportunity. It comes in lots of small little
bites. So the relative significance of any individual energy efficiency
measure to a consumer or a business is small."

This is, in part, why most of you -- and me -- have never gotten
around to, say, installing a programmable thermostat. (That and the
fact that I still struggle sometimes to get my DVD player to talk to my
TV.)

Americans waste energy for many other reasons, all, in a sense,
market failures. Owners of apartment buildings have little incentive to
make the air-conditioning more efficient in tenants pay the bills.
Buyers of new homes neglect to ask about the insulation's R-value.
Working class people strapped for cash won’t pay extra for a more
efficient clothes dryer, even if it saves money in the long run.
There’s a vast lack of knowledge, even in business, about how and where
energy is consumed.

As the 165-page report says:

the efficiency opportunity is fragmented across
literally millions of locations and billions of devices and most
opportunities require an initial investment that pays back over time.

Yet there's good news in the McKinsey study, which is packed with
data, analysis, graphics and recommendations. Americans are already
becoming more efficient, the study says:

"Since 1980, energy consumption per unit of floor space
has decreased 11 percent in residential and 21 percent in commercial
sectors, while industrial energy consumption per real dollar of GDP
output has decreased 41 percent."

To accelerate that progress, McKinsey says we need federal, state
and local government action, more education of consumers and
businesses, and greater alignment among utilities, regulators and
consumers of energy.

There's no point in my trying to sum up all of the recommendations
here.

Among many other things, more information and public awareness
will help a lot. So will efficiency codes and standards, as well as
financing mechanisms to help consumers and businesses get the capital
they need to install energy-efficiency improvements. Some of this is in
the Waxman-Markey climate change legislation -- earlier this week, I
questioned whether we need subsidies for efficient appliances -- but the McKinsey people declined to comment on pending legislation, for obvious reasons.

Unfortunately, the whole topic of energy efficiency is terribly
complicated and fundamentally boring which is why reporters like me
would tell you, if we're being honest, that we’d prefer to write about
electric cars or wind turbines or solar panels.

But energy efficiency matters a lot. It's the ultimate untapped renewable energy resource.

Here’s how McKinsey describes the potential:

"A comprehensive strategy, executed at scale, could
reduce the nation's annual non-transportation end-use energy
consumption from 36.9 quadrillion BTUs in 2008 to 30.8 quadrillion BTUs
in 2020 -- saving 9.1 quadrillion BTUs relative to a business-as-usual
baseline. (That baseline projects that 39.9 quadrillion BTUs of energy
would be consumed in 2020.) This reduction in energy consumption could
yield savings worth more than $1.2 trillion (at a rate of $130 billion
annually). Such savings are far greater than the $520 billion that
would be needed for upfront investment in efficiency measures. The
reduction in energy use would also result in the abatement of 1.1
gigatons of greenhouse gas emissions annually, the equivalent of taking the entire U.S. fleet of passenger vehicles and light trucks off the roads."

The full McKinsey report is available for download here.
[PDF]


Images courtesy of McKinsey, from its report.