Creating jobs and savings with energy efficiency

Posted on  

"Creating jobs and savings with energy efficiency"

Upgrading just 40% of buildings would generate 625,000 jobs and cut U.S. energy bills up to $64 billion a year

Energy efficiency is THE core climate solution: The biggest low-carbon resource by far.  “Efficiency Works,” a major new report by Bracken Hendricks, Bill Campbell, Pen Goodale, finds that a straightforward set of policies aimed at upgrading just 40% of the residential and commercial building stock in the United States would:

  • Create 625,000 sustained full-time jobs over a decade
  • Spark $500 billion in new investments to upgrade 50 million homes and office buildings
  • Generate as much as $64 billion a year in cost savings for U.S. ratepayers, freeing consumers to spend their money in more productive ways

What follows is a cross-post of the report summary.

The United States is mired in an urgent jobs crisis. Despite some early signs of a sustained economic recovery, in many parts of the country the debilitating fallout from the Great Recession on employment remains a painful fact of daily life. Few industries have felt the economic downturn harder than the construction industry, which suffered the most from the consequences of a decade of gross mismanagement of our nation’s mortgage markets and financial services industries.

The unemployment rate in the construction industry hovers at Depression-era levels, remaining near 25 percent for three straight months by March of this year. Between 2006 and early 2010, total payroll employment in construction fell by 2.1 million jobs, with residential construction declining by 38 percent, meaning that more than one in three construction workers lost their job as a result of this recession. And this collapse in construction cascades across other industries as well. Construction-related retail jobs fell by 14 percent, and manufacturing jobs in wood products by 30 percent over the same period.

Collapsing demand for labor in construction industries is devastating to American families and communities nationwide. To confront this crisis, the U.S. jobs market needs sustained new demand for the skills of construction workers that is grounded in providing real value to the economy through enhanced productivity, greater efficiency, and improved asset value for real estate. For that to happen, we need a sound strategy for investment in our nation’s stock of residential and commercial buildings””a strategy that will get banks lending again, put construction crews back on the job, and improve the long-term economic value of buildings for homeowners, businesses, and investors alike.

Such a solution is readily available. Our country needs a national program to retrofit America’s homes, offices, and factories for energy efficiency””a program that can provide an important answer to the jobs crisis facing our country (see box on page 2). But it will take public policy leadership to mobilize the private sector investment that is needed to grow this emerging market. Fortunatey, many states around the country are already demonstrating that with public sector leadership it is possible to jumpstart market demand for energy efficiency retrofits of our homes and businesses.

In this paper, the Center for American Progress and Energy Resource Management look at state regulations and incentives for energy efficiency that are working today in leading states to accelerate demand for energy efficiency services, businesses, and ultimately jobs. As this market rapidly grows in coming years, states that have put in place strong policies for energy efficiency will be best positioned to capture these new employment opportunities for construction workers in clean energy. Despite the growing state leadership documented here, however, more must be done to capture the full potential of energy efficiency to serve as a national engine of reinvestment and job creation.

Choices in policy can have a tremendous impact on setting the market conditions that entice private sector investment and put skilled construction workers back on the job. This paper identifies 10 policies that are effectively used in states and can have an especially large impact in shaping the market for energy efficiency. Using a state-by-state analysis of existing policies (including both regulations and investment incentives), as well as market conditions (including energy prices and building stock), the Center for American Progress and Energy Resource Management identified the leading states where smart policies are poised to set the stage for clean energy jobs and the homegrown businesses that will serve this new demand.

These leading states can be found in every region of the country, in states with high- and low-cost sources of energy, and in both heating and cooling intensive climates. The key driver of these markets for efficiency is the presence of policies and market prices that allow businesses to profitably recover the cost of their investments in productive, innovative, and cost-effective energy efficiency measures.

None of these states has put in place the entire suite of policies, and each is only now beginning to develop the potential of energy efficiency to create a robust market for clean energy jobs. But these states have developed important pieces of the puzzle. In the pages that follow we will detail how we chose the “Top 10 Energy Efficiency States” and identified an additional “Top 10 High Market Potential States” that also could be poised to assume leadership in building energy efficiency as a new industry and source of increased economic competitiveness.

For other states that do not appear on this list, policy innovations could rapidly create the structures for energy efficiency as a growth business sector. Our rankings looked specifically at the potential market for energy efficiency, especially for the underserved commercial building market segment. A significant factor in determining the market potential for energy efficiency is energy prices, and it is important to realize that some of the most successful market structure innovations undertaken have been in states that rank relatively far down on our list, or even out of the top 10, because their retail energy prices are below the norm, slowing the recovery of investments in energy-saving measures. For other states that do not appear on this list, following this path of policy innovation could rapidly create the structures for energy efficiency as a growth business sector.

Top states doing a good job with energy efficiencyWe based our analysis on what we consider the 10 key energy efficiency policies that states are adopting or experimenting with to varying degrees. These policies are:

  • Energy efficiency measures in Renewable Portfolio Standards””policies that not only require utility companies to meet a set portion of demand from renewable energy but also include energy efficiency as a qualifying form of clean energy.
  • Energy efficiency measures in Renewable Energy Credits””policies that establish markets for tradable clean energy credits and include energy efficiency as a qualifying clean energy resource.
  • Energy efficiency specific standards that require utilities to plan for meeting a percentage of future growth in demand through energy efficiency instead of increasing supply. These policy tools include Energy Efficiency Resource Standards and Energy Efficiency Portfolio Standards.
  • Unbundled utility structures in which energy transmission and distribution utilities are separate from power generation companies that own power plants, encouraging least costs strategies for meeting energy demand through conservation.
  • Decoupled utility rate structures, where utilities’ rates are adjusted to compensate for changes in the volume of energy sold, removing the structural disincentive to conserve energy.
  • Aligning efficiency with utility companies’ shareholder benefits, such as bonus rates of return, reimbursing program costs, or other incentives that help transform efficiency from a special program into a core business practice.
  • Penalties for noncompliance with energy efficiency standards, to ensure that well-intentioned programs are effectively implemented, monitored, and improved upon over time. Effective policies must have real consequences.
  • Regulatory cost-benefit tests that focus on utilities’ real costs, in order to isolate the specific value offered by energy efficiency investments.
  • Property-assessed financing structures that link the benefits of installed efficiency to a building, rather than the owner of the building, allowing repayment of financed investments to transfer automatically to new owners.
  • Service assessment delivery structures, which allow government jurisdictions to directly facilitate financing of upfront capital costs, assuring repayment through municipal or other service assessment mechanisms.

As we will demonstrate in this paper, these policies enacted at the state level (in different mixes in different states) are already providing numerous real-world examples of how policy-driven energy efficiency markets can create a new industry to power job creation in the construction sector profitably and sustainably. These same policies help to combat global warming and lower our nation’s reliance on foreign fossil fuels””both important national goals. But make no mistake: No state has fully developed the potential of their energy efficiency market to create clean energy jobs, let alone the federal government.

As a country, the United States substantially lags behind our closest economic competitors in the energy efficiency of our economy. We believe the examples presented in this paper can set the stage for a powerful new national energy efficiency strategy, which fixes market barriers to unleash entrepreneurs, investment, and innovation. This is must reading for anyone interested in broad-based job creation and economic prosperity, enhanced national energy security, and a clean, sustainable environment powered by new ideas, new private capital and fresh policy prescriptions for the 21st century.

Energy efficiency retrofits: Fast facts

A national program to make our homes and offices energy efficient is a sure job creator

A national program to retrofit America’s homes, offices, and factories for energy efficiency can provide an important answer to the jobs crisis facing our country. The Center for American Progress estimates that retrofitting just 40 percent of the residential and commercial building stock in the United States would:

  • Create 625,000 sustained full-time jobs over a decade
  • Spark $500 billion in new investments to upgrade 50 million homes and office buildings
  • Generate as much as $64 billion a year in cost savings for U.S. ratepayers, freeing consumers to spend their money in more productive ways

Whether we are motivated by economic, national security, or environmental concerns, a national commitment to energy efficiency will create substantial new demand for labor across the economy, and especially in construction and construction-related manufacturing jobs.

Investing in energy efficiency provides economic benefits in other ways as well. Increasingly efficiency means state-of-the-art buildings, enhanced comfort, better health, and improved economic value. Highly efficient “green” buildings use less energy, attract higher rents, spend less time vacant, and command higher prices at the time of sale. Energy cost savings and well-designed financing structures also reduce net building operating costs permanently.

Energy efficiency is driving innovation in business models as well. As entrepreneurs generate value and profit by mining current inefficiency and waste for new economic opportunities, they improve the competitiveness of the broader economy. And increased efficiency makes both homeowners and the economy as a whole less vulnerable to fluctuations in energy prices, while advanced building materials and cutting-edge information technology for better building management represent fast-growing markets for American manufactured products.

Smart policies for energy efficiency can be not only an engine of economic recovery but a catalyst for innovation as well.

– Bracken Hendricks is a Senior Fellow at the Center for American Progress, Bill Campbell is chair of Energy RM, and Pen Goodale is the Director of Research for Equilibrium Capital Group.

Related Posts:

« »

19 Responses to Creating jobs and savings with energy efficiency

  1. fj2 says:

    Long overdue that good sense prevails.

  2. Mark says:

    Buildings consume 40% of the nation’s energy. In non-industrial suburban towns, buildings consume about 60% of the energy used in town. In New York City, the mayor recently stated that buildings consume about 80% of the energy used in that city.

    Any plan to mitigate the effects of climate change needs put improving the energy efficiency of our buildings at the top of the list.

  3. Gord says:

    We found here at The Ravina Project using 6 years of natural gas data and 3 years of PV generation data that it was 3 times more efficient to insulate rather than generate.

    The difference was between 25 MWh (negawatts) of savings in natural gas vs. 8 MWh of solar PV generation both over 6 years. The costs associated with house upgrades and the PV generator were about the same.

    See our paper on household thermodynamics with the details at: http://www.theravinaproject.org/project_papers.htm

    We strongly support upgrading structures as the best use of resources. We also strongly recommend that all reasonable upgrades to the thermodynamic properties of a house should be completed before installing Photo Voltaic generators.

    There is one possible exception and that is solar hot water. It is 4 times more efficient than PV on an energy captured per dollar spent basis. It is more complex and needs maintenance but for a family of four or more with young children, the payback is rather short term as compared to other forms of energy capture (wind and PV).

    In areas where domestic hot water uses natural gas it significantly cuts into carbon emissions for the household. In other areas where domestic hot water production uses coal generated electricity the cut in carbon emissions is even greater.

  4. BBHY says:

    This is truly an excellent plan! I for one would back it 100%.

    There is just one thing missing: how to eliminate conservative opposition. As long as conservatives continue to hold power in the US, this whole wonderful idea is nothing more than pie in the sky dreaming. I know that sounds pessimistic, and it is, but it’s also realistic. Any sensible idea that would move this country in a positive direction is bound to be blocked by the conservatives in power.

  5. Jim Groom says:

    All well and good. The problem, as always, is leadership. The older I get the more I have doubts about the future of our nation. Many of our leaders talk a good game, but when it comes to fighting for change suddenly things are just too hard to accomplish. Special interest and opposition from the other side of the political spectrum run head long into good intentions. I sincerely hope that I’m proven wrong by future events…and results.

  6. Bob Wallace says:

    President Obama put $4.73 billion in the economic recovery bill for building weatherization. The goal was to upgrade one million homes per year.

    The program has gotten off to a slow start, I think only 250,000 homes weatherized so far. But the rate is accelerating.

    For a more detailed read about what has happened, why the start was so slow…

    http://www.politifact.com/truth-o-meter/promises/promise/452/weatherize-1-million-homes-per-year/

  7. mike roddy says:

    Hotel rooms are the obvious place to start here in the US. Guests leave the heater or AC on when they leave the room, wasting huge amounts of energy.

    The entire rest of the world uses keycard based systems, where the guest’s key goes into a slot signaling that the room is occupied, sending the thermostat to default mode. The guest takes the key out when he leaves, and the HVAC drifts to an 8 degree setback temperature. Average room energy savings is about 35%. This system was developed in Germany about 15 years ago, and it’s now common in South America, Asia, Europe, and the Caribbean. It pays for itself in about 12- 18 months with utility rebates; tax breaks and asset appreciation are extra. Guests like it, even here in the US.

    We don’t do it here much because American hotel owners and GM’s are too frightened to do anything different. Soon this will change, everyone will do it, and millions of tons of wasted CO2 emissions will be avoided.

    Disclosure: I’m a wholesale distributor and installer for the leading keycard micropressor energy management system in the US. Interested parties can email me at mike.greenframe@gmail.com. Special discounts for Climate Progress readers.

  8. Ranger47 says:

    As a small business owner, I’m willing to do this but the payback has to be less the 5 years. Anything longer and I’ll need help paying for it. Who should I contact?

  9. fj2 says:

    Teams of suitably high-skilled local experts, expeditors, and consultants would do much to accelerate broad implementation.

  10. fj2 says:

    Unfortunately, transportation is not touched on in this report which may ultimately, require a reinvention of civilization’s economic base.

    And simply going by incremental improvements in miles per gallon per vehicle and reduced emissions is not nearly enough.

    Lester R. Brown in Plan B 4.0 does this to some extent where the savings are quite dramatic.

  11. mike roddy says:

    fj2,

    The best company to work with is peconsulting.com, from the San Diego area (though their engineers go everywhere). They can retrofit a building for zero net energy, and have saved their clients over $2 billion in energy costs in the last 20 years. It’s complex, methodical work that requires experience and a big toolkit.

  12. darth says:

    Typical conservative argument: Efficiency doesn’t work because people just use more if it costs less (eg drive more if MPG is higher, set thermostat higher (or lower in summer) if using less electric, etc)

    Of course this argument is fatuous because of actual facts: like my commute distance doesn’t change if I get a smaller car, I keep my house at 80 in the summer even though I have a new HVAC because it’s comfortable to me.

    I’ve used those keycard systems in Europe, they work well. Even control the lights (when you take your room key, all the lights go out)

  13. Bob Wallace says:

    Ranger – “but the payback has to be less the 5 years”

    Five year payback on your investment would be a return of 14.4%.

    Do you make all your business decisions based on earning at least 14% on the money invested? Can you tell us about any capital expenditures that are likely to earn you that sort of return?

  14. A Siegel says:

    While welcome, I wonder whether you looked toward far more aggressive programs such as outlined by Ed Mazria at Architecture 2030. Roughly $200 billion spent on buying down mortgage rates for refinancing done with cash out for energy efficiency & renewable energy — the buy down level based on the degree of achieved energy efficiency. Mazria’s calculations were $2 trillion in leveraged economic activity with nearly 10 million jobs created along with a massive impact (for the good) on the US carbon footprint. My calculations suggested that the USG would end up pretty close cash neutral due to increased tax revenues and decreased outlays on social services. (See: http://getenergysmartnow.com/2008/12/11/massively-efficiently-path-to-stimulate-the-economy/ … also, see: http://getenergysmartnow.com/2009/11/19/green-energy-jobs-stimulate-me/)

  15. menfez says:

    thanks so much admin

  16. Ranger47 says:

    B Wallace…Yes, I make my capital investment decisions based on making at least 15% IRR, internal rate of return. Using six sigma for process improvements and sound market research for new products, we have over 100 years of experience indicating that all projects must meet this hurdle rate. We believe using this criteria is in large part why we’ve existed for 100 years.

    We’ll invest in lesser return projects only if someone, typcially the government, will help subsidize the project. If you’re willng to offer some free cash Bob, let me know.

  17. Ranger47 and B Wallace: your interchange is core to this finance question.

    Ranger47′s hurdle rate is at the low end of the “cost of capital” we see from building owners: three to five year payback hurdles are normal in the commercial world, and it’s for the reasons Ranger47 cites: capital projects have a return cut line, and efficiency projects with longer paybacks don’t typically make it.

    It’s even a higher hurdle in the homeowner market, where there are perceived higher uses for accumulated capital or borrowing capacity — vacations, college educations, new cars, retirement, rainy day funds. Residential uptake gets compelling only for measures with very short and assured paybacks.

    In other words – people have the money. They just have other uses for it.

    But Ranger47, I’d bet you’d happily allow someone else to retrofit your building for you, if you received a percentage of the saved energy value and if your risk profile on your operating costs didn’t change (that is, your payment obligation was measured according to metered energy savings, not “deemed”, but what was actually measured to be saved month by month.)

    Your IRR would be handsome, because you’d be putting out little or no capital yourself. In that case, you’d love it if the third party doing the retrofit installed measures that collectively required a ten or fifteen year payback, but generated more savings. As savings went up, your percentage of the higher number generates greater returns.

  18. Keith Whelpdale says:

    Joe, normally I like your stuff but none of this will do anything to reduce global carbon use.

    Due to market economics improvements in efficiency are pointless unless there is a global price on carbon that will increase the costs of CO2 emmissions faster than the market price is being reduced due to the reduction in demand.