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.