Energy efficiency has graduated from the “hidden fuel” to the “first fuel.”
That’s the word from a new analysis the International Energy Agency published Tuesday, looking into the benefits of investments in energy efficiency upgrades. Those gains can be hard to measure, as they lie in energy not used and costs not encountered — hence the “hidden fuel” moniker. This tends to result in energy efficiency being chronically undervalued, a problem the study sought to remedy by taking a “multiple benefits” approach that accounted for the full sweep of effects across health, economics, energy, pollution, etc.
The numbers IEA found were massive. Thanks to their efficiency investments, the energy use avoided by IEA’s member countries in 2010 was bigger than the demand met by any other single energy supply — including oil, coal or gas. The total amount of investment in energy efficiency across those countries as of 2011 was an estimated $300 billion, which is equal to their aggregate investments in coal, oil and natural gas.
Drilling down a bit deeper, IEA determined that energy efficiency can provide health benefits that are four times the value of the upgrade cost, by freeing up more energy to use for heating, cooling and air-conditioning — and thus improving health for people with a wide range of allergies, cardiovascular problems, and other ailments. It can improve industrial productivity by up to 250 percent by lowering the costs of energy in the supply chain and thus making products cheaper and more competitive, or freeing up resources to be used in other product improvements. IEA also found that when these productivity gains were factored back into industries’ traditional rate of return analyses, the time it took for the upgrades to pay for themselves dropped from 4.2 to 1.9 years. Because most businesses make their financial calculations on relatively short time horizons, that finding could alter the way many firms weigh the benefits of efficiency versus the one-time cost of the improvements.
Energy efficiency can also improve national budgets by lowering the cost of energy used in the government’s infrastructure, and it can increase energy access for low-income populations by making energy cheaper to deliver per unit. And as the Guardian pointed out, energy efficiency can even increase regional and geopolitical security — in this case, by helping Europe disentangle itself from Russian gas exports.
But IEA also looked at the current state of energy efficiency policies across its member countries, and found that most of the potential gains in their economies will not be realized by current policy goals:
CREDIT: International Energy Agency
The full version of IEA’s report lays out many of the specific tools countries and businesses can use to factor in the gains of energy efficiency, and the policies that can help markets monetize the improvements — though unfortunately it’s behind a paywall.
On the climate change front, a McKinsey report from 2009 even laid out how the entirety of the White House’s commitment to cut national greenhouse gas emissions by 17 percent from 2005 levels by 2020 could be met through energy efficiency improvements while netting Americans $700 billion in savings.
Now, that last point is more a demonstration of the immense gains to be made in energy efficiency as opposed to what would actually happen. The IEA report also raised the issue of the “rebound effect.” Efficiency gains mean a given unit of energy costs less, and then people respond by buying more energy. So the gains in terms of reduced emissions or lower total spending are partially rolled back by increased demand.
But this is far from a bad thing: as IEA noted, the health benefits, poverty alleviation, productivity improvements, and economic growth that can come from efficiency improvements are all examples of the rebound effect. Instead of using less energy, people can do far more to improve their well-being with the same amount of energy. That in itself is a crucial development, because historically the United States’ energy consumption has kept pace with economic growth. But those two trend lines diverged in the mid-1970s, with the economic growth continuing on up and energy use practically plateauing. There’s also evidence the same thing is happening at the global level.
Plateauing energy use means plateauing emissions. So while energy efficiency certainly can’t solve climate change itself, it can certainly buy us plenty of time — all while we keep making people’s lives better around the globe, and transition the energy we are still using onto a more sustainable and renewable footing.