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.