Chu explains the energy efficiency opportunity

“Regardless of what the skeptics may think, there are indeed 20-dollar bills lying on the ground all around us. We only need the will — and the ways — to pick them up.”

Energy Secretary Steven Chu wrote an op-ed in this behemoth World Economic Forum report.  HuffPost reposted it, and we repost them.

For the next few decades, energy efficiency is one of the lowest cost options for reducing US carbon emissions. Many studies have concluded that energy efficiency can save both energy and money. For example, a recent McKinsey report calculated the potential savings assuming a 7% discount rate, no price on carbon and using only “net present value positive” investments. It found the potential to reduce consumer demand by about 23% by 2020 and reduce GHG emissions by 1.1 gigatons each year — at a net savings of US$ 680 billion.

[JR:  McKinsey report is here:  “McKinsey must-read: U.S. can meet entire 2020 emissions target with efficiency and cogeneration while lowering the nation’s energy bill $700 billion!]

Likewise, the National Academies found in 2009 that accelerated deployment of cost-effective technologies in buildings could reduce energy use by 25-30% in 2030. The report stated: “Many building efficiency technologies represent attractive investment opportunities with a payback period of two to three years.”

Some economists, however, don’t believe these analyses; they say there aren’t 20-dollar bills lying around waiting to be picked up. If the savings were real, they argue, why didn’t the free market vacuum them up? The skeptics are asking a fair question: why do potential energy efficiency savings often go unrealized?

I asked our team at the Department of Energy to review the literature on savings from home energy retrofits. We are pursuing energy efficiency in many areas — from toughening and expanding appliance standards to investing in smart grid — but improving the efficiency of buildings, which account for 40% of US energy use, is truly low hanging fruit.

In this review, we looked only at studies that compared energy bills before and after improvements and excluded studies that relied on estimates of future savings. We found that retrofit programs that were the most successful in achieving savings targeted the least efficient houses and concentrated on the most fundamental work: air-tight ducts, windows and doors, insulation and caulking. When efficiency improvements were both properly chosen and properly executed, the projected savings of energy and money were indeed achieved. In science, we would call the successful programs an “existence proof” that efficiency investments save money. Too often, however, the savings went unrealized, due to a number of reasons, including poor efficiency investment decisions and shoddy workmanship.

There are other reasons why energy savings aren’t fully captured. Market failures include inertia, inconvenience, ignorance, lack of financing and “principal agent” problems (e.g., landlords don’t install energy efficient refrigerators because tenants pay the energy bills). To persuade the skeptics and spark the investments in efficiency we need, the Department of Energy is now focused on overcoming these market failures.

First, the Department is working to develop a strong home retrofit industry. We are creating a state-of-the-art tool that home inspectors can use on a handheld device to assess energy savings potential and identify the most effective investments to drive down energy costs. We’re also investing in training programs to upgrade the skills of the current workforce and attract the next generation. The Department is also focused on measuring results — to both provide quality assurance to homeowners and promote improvement. For example, we’re pursuing new technologies such as infrared viewers that will show if insulation and caulking were done properly. Post-work inspections are a necessary antidote and deterrent to poor workmanship.

To address inconvenience and to reduce costs, we’re launching an innovative effort called “Retrofit Ramp-Up” that will streamline home retrofits by reaching whole neighborhoods at a time. If we can audit and retrofit a significant fraction of the homes on any given residential block, the cost, convenience and confidence of retrofit work will be vastly improved. Another goal of this program is to make energy efficiency a social norm.

To help pay for investments, we’re working with the Department of Housing and Urban Development to encourage new financing tools. For example, homeowners might pay back energy improvement loans via an assessment on their property tax bill. Out-of-pocket expenses are eliminated and energy savings will exceed the increase in property tax. Both the savings and the loan payments would stay with the house if the owners decide to sell.

Another opportunity comes when a property changes hands. Banks require a structural inspection and a termite inspection; they should also ask for the last year’s worth of utility bills, which speaks directly to the home’s affordability. If improvements are needed, the costs could be seamlessly tacked onto the mortgage.

The greatest gains can be realized in new construction. By developing building design software with embedded energy analysis and building operating systems that constantly tune up a building for optimal efficiency while maintaining comfort, extremely cost-effective buildings with energy savings of 60-80% are possible.

Regardless of what the skeptics may think, there are indeed 20-dollar bills lying on the ground all around us. We only need the will — and the ways — to pick them up.

This op-ed appears in a new report by the World Economic Forum and IHS Cambridge Energy Research Associates entitled “Energy Vision 2010: Towards a More Energy Efficient World.” The full report can be found here.

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9 Responses to Chu explains the energy efficiency opportunity

  1. mike roddy says:

    Chu is right, this is easy pickings. He is a really good Energy Secretary.

    US hotels are the biggest efficiency opportunity. They leave the HVAC on in the rooms all day, since they won’t invest in microprocessors that will monitor guest presence. This totally wastes about 35% of room energy use, and during peak hours, too.

    Disclosure: My business is installing equipment that stops this from happening. Payback time is about 12-18 months. The parent company’s equipment is only in about 1% of US hotel rooms, and they are the leading keycard controls manufacturer. The equipment is even made right here in the US.

  2. CW says:

    This is very Amory Lovins which is why I’m lovin it.

    It’s true a price on GHG emissions is needed, but the price will be more effective the more the market is able to respond.

    Addressing market failures will go a long way towards helping on so many fronts, not just the climate.

  3. Ted Nation says:

    CW is right! This is what advocates like Amory Lovins and Arthur Rosenfeld have been promoting since the late 70s with some success, particularly in California under Rosenfeld’s leadership. We would be so much farther down the path they envisioned if the Reagan era and subsequent conservative governments hadn’t intervened. Let us hope that it’s not too late and that we can find the political will to do the right things now!

  4. catman306 says:

    Don’t expect any help promoting real energy conservation to come from the electric, natural gas, coal and power transmission companies. It’s not in their short term best interests. Conservation is not in their business model.

  5. jcwinnie says:

    @CW Yes, Secretary Chu is channeling Lovins, now if he would see the sense in Lovins’ objection to more nuclear.

  6. Leif says:

    “If the savings were real, they argue, why didn’t the free market vacuum them up? ” I believe that the reason is, that for the most part, these savings are to be realized by the folks at large and not the free market. In fact much of the free market will lose money. Less fuel consumed is less profits for EXXON and the like, so that segment of the economy will tend to lobby against conservation.

    But then corporations would never promote actions contrary to the well-being of the American people, would they?

    Why is it that capitalism, corporations and humanity cannot pursue long term survivability with shared enthusiasm?

  7. I have been advocating conservation for nearly half a century and actually implemented it in several of my homes and that of friends decades ago. Our electrical and gas bills are about a third of the majority of our neighborhood according to our utility.
    I also insisted on conservation/efficiency before any other option, such as passive or active solar, when I was the manager of the Solar Office for the California Energy Commission. It should be used as much as possible. But let’s be realistic about it, it is not sexy like PV and people do not like to bother.

    Energy efficiency and conservation must be mandatory to make useful impact. Few will do it even with financial incentives. It is just too much trouble for non visible rewards. Make it a strict law!

    The energy saving potential often quoted are too optimistic since even with mandatory adoption it applies to all new building well, but very hard to make much difference in existing buildings. Just look at any modern Chinese city sky line, or for that matter Paris and New York. Do you think we can make any reduction of significance there?

    At best, and that may be a stretch, we may get half of the calculated, may be a third.
    However, we need to cut our energy use by all the means we can. The most promising one is CHP, combined heat and power during the electricity generation process that it is typically now 30% efficient in old coal plants and up to 45% in current combined cycle NG plants. That may cut the fuel, input power, by one third, half of the amount we waste now.

    Talking about it is a waste of energy, making it mandatory and increasing the effectiveness of today’s efficiency measures is needed.

    See several articles about this on my web.

  8. James Newberry says:

    The economy is designed to make increased consumption an economic (i.e. public) good. Unless we redesign the economic system through public policy then we are swimming into headwaters. Right now, the political system is locking in Perverse Subsidies (roughly one half trillion per year for “fossil fuels,” globally) or actually increasing them, through Westernized global capitalism. This is NOT free market enterprise.

    Yet, the Empire State Building is going to have a major energy retrofit. We are faced with insurmountable opportunities (and rampant fraudulent global plutocracy).

  9. Dan says:

    Some really good policy fixes in this article: paying for efficiency retrofits through property taxes, as well as including the price of upgrades in new mortgages. I’m especially interested in seeing if including average utility costs to potential buyers will overcome information barriers.

    If I’m not mistaken, Waxman-Markey required home-energy audits at the point of sale for houses, no?

    Let’s only hope KLW will be as aggressive with efficiency as W-M was.