Time for a Massive U.S. Investment in Energy Efficiency

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"Time for a Massive U.S. Investment in Energy Efficiency"

The Best “Austerity” is Cutting Energy Costs

by Trevor Winnie, reposted from Clean Edge

A rising attitude of austerity has been sweeping the nation for some time now, with the loudest voices putting near term deficit concerns in front of commitment to long term economic growth. But a temporary spike in government spending might be the most effective way to boost demand for goods, services, and labor in the face of lingering U.S. economic malaise – and at a relatively low cost.

Boosting investment in infrastructure – namely our energy system, telecommunication networks, and roads and rails – has long been the remedy argued for by bright minds like Nobel laureate economists Paul Krugman and Joseph Stiglitz, and Washington Post columnist Ezra Klein.

Because of the recession, construction materials are cheap. So is labor. And your borrowing costs? They’ve never been lower. That means a dollar of investment today will go much further than it would have five years ago—or than it’s likely to go five years from now,” explained Klein in an October 2010 Newsweek Op-Ed. “So what do you do? If you’re thinking like a CEO, the answer is easy: you invest.”

Fifteen months later, Klein’s words remain potent. Krugman and Stiglitz have both voiced similar cases for increased investment. Support for a clean-energy economy has, not surprisingly, played a central role. “Increased investment to retrofit the economy for global warming would help to stimulate economic activity, growth, and job creation,” says Stiglitz.

So what does this mean for clean tech? The immediate reaction might be to build as much clean-energy generating capacity as possible. But it’s important to look beyond a strategy that focuses solely on new solar panels and wind turbines. Instead, any energy-related infrastructure investing should first and foremost be focused on improving the energy efficiency of our factories, offices, and homes. Buildings are responsible for roughly three-quarters of our electricity use and more than 40 percent of our total energy consumption (surprisingly, 60 percent of this can be traced to just three activities: space heating/cooling, lighting, and water heating). Improving the efficiency of our built environment ­– through readily available technologies like efficient lighting, low-energy appliances, and weather-resistant windows – would not only put many Americans back to work in the short term, it would also provide long run energy savings that will put money directly into the pockets of American families and businesses for years to come.

And the potential savings are significant. A 2009 study by consulting firm McKinsey & Company concluded that the U.S. could save $1.2 trillion through 2020 by investing $520 billion in non-transportation energy-efficiency improvements, reducing the projected national energy use in 2020 by about 23 percent. A similar and more recent investigation by the American Council for an Energy-Efficient Economy (ACEEE) envisions a scenario in which efficiency improvements could cut U.S. energy consumption by the year 2050 almost 60 percent, achieving as much as $400 billion each year in energy savings. And another small detail to consider: energy efficiency continues to be the cheapest way to get electricity – in this case, with “negawatts” from moderated demand – averaging roughly 3.5 cents per kWh and besting even traditional fossil fuel sources, according to the Institute for Electric Efficiency (IEE).

With savings of this magnitude there for the taking, support for efficiency has begun to gain some noticeable momentum. The Obama Administration recently announced nearly $4 billion in combined federal and private sector investments to pursue energy upgrades to buildings over the next two years. And energy-efficiency programs are on the rise in the U.S., with budgets up by more than 25 percent in 2011, reaching a record high of $6.8 billion, according to the IEE. As important as this progress is, it is only the first step in what is needed to realize the full potential of energy-efficiency improvements – especially if efficiency investments are to act as stimulus and catalyze an economic recovery.

The opportunity for large-scale energy efficiency is reflected in the rise of high profile “deep retrofit” efforts. Most notably, the recent renovation of the iconic Empire State Building – a joint effort by the Rocky Mountain Institute, Clinton Climate Initiative, Johnson Controls, Serious Energy, and others – will cut the building’s energy consumption by 40 percent, and by saving $4.4 million annually will pay for itself in less than four years.

Today’s partisan gridlock and the paralysis of election year politics may have all but killed hopes for new stimulus spending, but energy-efficiency investment is unique. If carried out properly, upfront costs incurred by the U.S. government can be directly paid for by energy savings down the road, with savings beyond the initial costs going directly to the American public. If this case can be made to the austerity hawks in Congress, government spending in the form of energy-efficiency pursuits might just have a fighting chance.

– Trevor Winnie is Clean Edge’s senior research analyst. He is involved in a range of activities, including preparation of reports, subscription products, and consulting projects. This piece was originally published at Clean Edge.

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7 Responses to Time for a Massive U.S. Investment in Energy Efficiency

  1. Henry says:

    The outlook for solar is not good, see this story at Bloomberg Business Week;

    http://news.businessweek.com/article.asp?documentKey=1376-LY3AJ31A74E901-703SIP1EKP1CK27FVGL5LB0GP8

    • Mark Shapiro says:

      Quelle horreur! The German government is terrified that they installed too much PV last year! It’s simply a testament to the dramatic price drop of PV.

      This is excellent news masquerading as bad news.

      The FIT for PV generated electricity is “too high” in Germany (though it is dropping steadily). Too bad we can’t measure the global warming subsidy of fossil fuels.

  2. Thanks for this interesting comment. I agree.

    What was somewhat depressing about McKinseys most recent report about eco-efficiency is that it had so little about how investors could push this and benefit from it.

    There are some hopeful moves by large institutional investors who are being more vocal about their concerns:

    http://www.ceres.org/incr/investor-summit

    And informed commentators warn that current portfolios are exposed to a “carbon bubble” of mis-priced risk:

    http://citywire.co.uk/money/chart-of-the-day-a-new-sub-prime-bubble-threat/a559801

    The big question is, is this resulting in more creative, strategic investment strategy?Are the dollars showing?

    Investors doing small thematic funds is nothing new but Mercers are reporting that those involved in their scenario project are acting on higher level issues (asset allocation, etc): http://www.mercer.com/articles/1406410

    The project I have most hope about is the Climate Bonds Initiative: http://climatebonds.net/

    (I should say I am an unpaid adviser to this project)

    I’d be interested to hear from readers if they see pension funds, (re)insurance companies (many of whom now talk about climate change, at least in their underwriting depts), UHNWIs and foundations adapting in this way.

  3. Leif says:

    Exactly! The only way to get more bang for the buck would be to get the military to contribute to the Green Awakening Economy in manpower, R&D, deployment, coordination, purchasing, focus, and training abilities. Another point is that much of the beginning effort of energy efficiency can be accomplished with the existing labor force and require little to no added training. Shovel ready! Freeing up much needed time to train for the higher skills as the economy requires it.

    • catman306 says:

      Leif, please tell me again how many kw-hrs of electricity you use daily, whether from your solar panels or off the grid. I’m averaging 14 kw-hrs/day. I got rid of two incandescent 150 w. bulbs and replaced with CFL and strings of LED xmas lights and my average dropped 2-3 kw-hrs/day. Add 2 kw-hrs/day for air conditioning in the summer, which could start soon judging by the severe spring storm rolling through Georgia as I type.

      Includes well pump, washer/drier, hot water, 2 computers, and stove.

      • Leif says:

        In the summer I average ~6-7 kWh/day and the winter ~ 25-30 kWh/day. My summer PV output with a 2.25 kw array produces an average of 10- 12kWh/day. Much less in the NW winter. I use 2 new Philips LED lights, (love them, 60W output, 12.W in) for the majority of my lighting and CFLs for the remainder. The majority of my winter heat is a high efficiency Mitsubishi heat pump with a home made solar/geothermal pre-heater. No way to compute what that adds but it is something, as it is often 15-20F warmer than ambient and never less than 2F. (free to build.) I do have a propane demand hot water heater and gas stove. (~ 1/2 gallon/day yearly average.) Electric cloths drier with summer cloths line supplement. 1300 sq. ft home with passive solar and good insulation, 48+ N lat. I do not feel deprived. I am on FB if you want more particulars.

  4. Geoff Beacon says:

    Is a “commitment to long term economic growth” really the best way? I’d like to retire “economic growth” from our vocabulary and concentrate on jobs, food, happiness and the survival of the good things in the world.. At a recent meeting in Sheffield the Greek MEP, Kriton Arsenis, pointed out that the extensive forest fires in Greece in 2007 caused a growth in GDP.

    Similarly, a car crash causes economic growth: It creates employment for car mechanics, insurance companies, parts manufacturers, hospital staff and possibly funeral directors.

    Conventional wisdom sees growth as the only way for creating jobs. Taxes on carbon emissions are criticised because they suppress growth and destroy jobs. But if carbon taxes were used to cut the cost of employing labour (especially at the bottom of the labour market) they would generate jobs through normal market forces.

    Just possibly we could have so many more of the good things – including jobs – that we could have “economic growth” without having to add in burning forests and car crashes.

    P.S. If environmentalists in the USA could the admit the reality of rebound effects and realise that energy efficiency may not be enough by itself, I think you could begin to recognise the benefits of a carbon tax recycled to create jobs. These are:

    1. reducing your dependence on imported energy,

    2. redistributing wealth downwards and

    3. cutting your carbon emissions.