by Alexis Karolides, cross-posted from the Rocky Mountain Institute

Which commercial building sector uses more energy per square foot than all but one other and is more than twice as energy-intensive as office buildings and schools? Grocery stores, second only to food service.

With utility costs rising—and already a significant percentage of the famously thin profit margin on food sales—stores must get serious about energy efficiency, particularly if they care to keep prices low for value-conscious customers.

Now, imagine slashing the energy use of a new or existing store in half, while achieving a better customer environment. How could this be done? Rocky Mountain Institute’s whole-system approach, reaping multiple benefits from single design moves, works particularly well when a retailer is willing to push the boundaries.

In 2010, building on years of experience with several other grocery chains and related industries, RMI worked closely with Texas grocery retailer H-E-B to inform a dramatically efficient design being used for a store that is to begin construction this year in a brownfield redevelopment area at Austin’s former airport site. The plan is expected to reap 50 percent energy savings. RMI studied H-E-B’s efficiency opportunity areas in energy, water and waste, and then held a workshop to innovate breakthrough strategies for designing efficient new stores and retrofitting existing ones.

Illustration by Lisa Haney

RMI often uses innovation workshops, engaging many disciplines within a client’s organization (including design, engineering, and operations staff) as well as an RMI team of experts in various disciplines, to turn complex challenges into integrative design solutions. The goal is not just to solve the problem, but to transform how the client designs and runs all its facilities, and to help shift the underlying strategy and culture, so the change is durable and creates competitive pressure for emulation.

Bill Reynolds, architect and group vice president-facility alliance for H-E-B, said that not only is the new Austin store on track to meet its 50 percent energy savings goal, but the RMI charrette was a catalyst for H-E-B to incorporate progressively better efficiency strategies in other new and existing stores.

“The tipping point was the [RMI] charrette,” Reynolds said, using the architectural term for an intensive, roundtable, transdisciplinary design workshop with ambitious deliverables.

To understand the energy savings H-E-B will achieve, let’s look at where grocery store operations use energy. Of all utility costs (including truck fuel, landfill fees, water, gas, and electricity), store electricity is by far the biggest expense. Breaking this down into end uses of electricity, the biggest chunk goes to refrigeration, then refrigerated-case anti-sweat devices and other equipment, heating ventilation and air conditioning, and then lighting.

How is H-E-B’s new store design, located at Austin’s Robert Mueller Airport Redevelopment site, going to use 50 percent less energy than this capable firm’s standard design of new stores, as well as efficient water and waste use? These integrative design moves are key:

• An airlock store design with vestibules (so trucks can deliver goods without making a big hole in the back of the building) and enhanced insulation.
• A lighting scheme that allows daylight to provide all of the ambient light when possible, eliminates glare, highlights product, enhances merchandising, and dims night lighting to comfortable levels inside while providing adequate lighting outside with LEDs (this can be enhanced by light-colored pavement that also reflects heat during the day).
• A highly efficient refrigeration and air conditioning system, with chillers and cooling towers, combined with a radiant slab that can heat or cool.
• Landscape and drainage strategies that eliminate irrigation and provide unique Texas character to the site.
• Indoor water use efficiency, including high-performance domestic fixtures, and such kitchen improvements as using portable pressure washers and eliminating seafood display ice.
• Reclaiming condensate for cooling towers.
• Aggressively composting and recycling remaining waste streams. Already H-E-B recovers over 50 percent of its waste, but the company’s sights are now set much higher.

Not only do these efficiency gains save energy and resources, they can also improve the indoor environment. Natural daylight and better electric lighting design improve the shopping experience—and studies show that shoppers spend more time in well-daylit stores. Well-designed nighttime lighting can reduce glare and eyestrain, while nontoxic finishes (eliminating vinyl floors and off-gassing paints for instance) improve indoor air quality.

The store is being touted as the “most sustainable” store H-E-B has ever built.

“RMI was the catalyst that spurred the green design,” said Charlie Wernette, H-E-B’s director of engineering. Next, H-E-B will implement these whole-system efficiency strategies across its existing store portfolio.

Given the grocery sector’s energy intensity, the implications can be even greater, with these steps serving as a model for other retailers. H-E-B’s execution of RMI’s Reinventing Fire principles are a critical example of making the ideas real. Buildings use 42 percent of the nation’s energy, costing more than Medicare—and most of that is wasted through inefficiency. Reinventing Fire shows that scalable efficiency solutions can transform our buildings from energy hogs to more comfortable, livable, healthful, and workable spaces that help usher in an efficient, secure, renewable energy era.

These steps are how RMI design recommendations would reduce typical store electricity demand:

• High-efficiency refrigeration systems—saves up to 18 percent of the store’s total electricity use.
• Skylights, and high-efficiency interior and exterior lighting—saves 12 percent.
• HVAC efficiency: chilled water, efficient fans and ductwork, desiccant dehumidifier—saves 10 percent.
• Radiant heating and cooling—saves 6 percent.
• Superinsulated walls, tight construction—saves 3 percent.
• Greatly reduced infiltration at entrances (vestibules)—saves 3 percent.

Potential water savings and waste recovery, though smaller in total expenditures, are even more dramatic on a percentage basis. Water efficiency could reduce consumption by 80 percent:

• Xeriscaping—saves 28 percent.
• Low-flow restroom fixtures and sink aerators—save 23 percent.
• Rooftop rainwater capture and use—saves 11 percent.
• Kitchen improvements such as portable pressure washers and pre-rinse spray valves—save 5 percent.
• Reclaiming HVAC condensate—saves 3 percent.

– Alexis Karolides is a principal architect working in the Electricity practice area at the Rocky Mountain Institute. This piece was originally published at the RMI website.

“There is an old joke, widely told among economists, about an economist strolling down the street with a companion when they come upon a $100 bill lying on the ground. As the companion reaches down to pick it up, the economist says ‘Don’t bother — if it were a real $100 bill, someone would have already picked it up’.”

by Ryan Matley, reposted from the Rocky Mountain Institute

President Obama’s call in his State of the Union address to capitalize on “the strongest two-year period of manufacturing growth since the 1990s” by encouraging businesses to bring work back to the United States can be accelerated with energy efficiency innovation.

While Obama urged Congress to take a series of tax steps to encourage businesses to bring jobs back to the United States, RMI has strong evidence that industry can take cost-saving efficiency steps without waiting for policy-makers. Doing so can quantifiably improve U.S. manufacturing’s competitive advantage right now.

Stories about the death of U.S. manufacturing are a recurring theme since the “Japanese invasion” of electronics and autos in the early 1980s, and the sector hemorrhaged 5.5 million jobs over the past decade. But U.S. manufacturing is far from dead, in fact providing a rare bright spot in today’s economy.

Manufacturing employment has grown each of the last two years, driven by a rebounding auto sector, and now employs 11.7 million people.

A number of trends are coinciding to make U.S. manufacturing increasingly competitive globally. Wages and benefits are growing rapidly in China—as Obama noted in his speech—at the same time that U.S. manufacturing wages are falling. The risks of operating a supply chain that stretches halfway around the world are growing: rising transportation costs, the threat of import duties, less product flexibility, slower time to market, intellectual property theft, and product safety/reputation risks are growing concerns when moving manufacturing offshore. All of these factors are translating into making U.S. manufacturing more appealing.

Efficiency and whole-system design can help industry accelerate these growing advantages. Analysis from Reinventing Fire, RMI’s blueprint to running a 158 percent bigger 2050 U.S. economy powered by efficiency and renewables reveals that the industrial sector can achieve 84 percent greater production using 9 to 13 percent less energy, and save $0.5 trillion net.

JR:  That’s a big bill on the ground waiting to be picked up (see also “Energy efficiency is THE core climate solution. Part 1: The biggest low-carbon resource by far”).

For example, with RMI’s help, Texas Instruments (TI) built a new, million-square-foot semiconductor fabrication plant in Richardson, Texas. This facility, opened in 2009, was the first LEED Gold rated semiconductor facility, and its innovative design saved $4 million in annual energy operating cost and 35 percent of its water use compared with TI’s previous chip fab built just four miles away. Building this facility added up to less than 1 percent of the construction budget.

These savings were generated through a combination of simple steps, including building orientation and exterior shade screens to minimize solar gain, light shelves to increase daylighting, big, straight pipes that reduce friction and pumping energy compared to small, crooked pipes. The design team was even able to remove an entire floor, saving the materials needed to build it and energy needed to operate it. Most importantly, these energy savings were obtained while exceeding management’s target of spending 30 percent less capital than the prevailing design. Meeting that goal meant the facility and its 1,000 jobs stayed in Texas rather than heading overseas.

The Texas Instruments story is recently joined by a wave of good news as companies from GE to Intel bring manufacturing back to the U.S. and invest in factories here. Rust Belt economies devastated by offshoring over the past decade are starting to repopulate their vacant industrial land (albeit with lower-wage jobs) while manufacturing in the South continues to grow.

The rising tide does not assure continued U.S. manufacturing growth, though. A number of clouds remain on the horizon. These barriers include a burdensome tax structure — Obama’s target Tuesday — stifling and lengthy permitting processes, and a lack of skilled workers to operate increasingly complex and automated manufacturing processes. Many of these barriers will require some act of Congress for real progress. But industry can take many clear steps on its own.

“The easiest way to save money is to waste less energy,” President Obama said, proposing that manufacturers be incentivized to eliminate energy waste in their factories as a way to lower energy bills, cut pollution, ramp-up manufacturing and provide more American jobs.

Radical energy efficiency improvements, made possible through whole-system design, can unlock far greater efficiency gains than typically thought possible, often at the same or lower capital cost than conventional designs. Because whole-systems design brings together all project stakeholders, from the designers and engineers to the production staff and owners, it can also break down costly assumptions and rules of thumb and yield diverse benefits such as improved productivity, product quality and working conditions.

Successfully nurturing a whole-systems design process from inception to construction is not easy. Despite all the benefits, the approach poses number of sticky challenges to navigate along the way. Whole-systems design takes more time than an off-the-shelf solution, and the exact outcome cannot be predicted at the outset. New approaches not yet familiar to the design team carry perceived technical risks, but a growing body of robust examples show the power of whole-systems design.

Manufacturing serves as the bedrock of our economy. It is the engine that has driven our dramatic economic growth and lifestyle gains since World War II. It has the largest multiplier of any other sector by far—for every $1 in manufacturing value added, $1.40 of value is created in other areas of the economy. It is worth our attention and persistent investment in ensuring its success. Alan Mulally, CEO of Ford Motor Co. after leading a resurgence at Boeing, underscores the point: “We have to make manufacturing a priority. It’s the foundation of everything associated with the economy.” It’s time to unlock the next industrial revolution through efficiency.

– Ryan Matley is an electricity consultant with the Rocky Mountain Institute. This piece was originally published at the Rocky Mountain Institute blog.

An innovative energy-smart finance program for homeowners – called Property Assessed Clean Energy, or PACE – has a chance for revival. Over the next 60 days (until March 26th, 2012), a broad bipartisan coalition of business leaders, environmentalists, property owners and federal, state, and local policymakers will finally have a chance to make their voices heard and explain to federal regulators why PACE makes economic and environmental sense.

The PACE Saga

PACE programs, run by towns or counties, enable property owners to finance the initial cost of energy efficiency improvements or small scale renewable energy projects and pay them off in small increments that are added to property taxes over an extended period of up to 20 years.  Participation in PACE programs is entirely voluntary and from the start, homeowners can save more on their energy bills than the cost of the payments thanks to the clean energy projects. Improvements financeable under PACE can include better insulation, more efficient windows, more efficient heating and cooling systems, and solar panels. (See: Babylon Steps Up the PACE of Green Jobs: “For Energy Savings, Carbon Reduction and Job Creation”).

Because of the economic and environmental benefits PACE could provide, PACE programs were supported by wide range of stakeholders: from labor unions to Fortune 500 companies and environmental groups.  Starting in 2008, over 27 states and the District of Columbia passed PACE enabling legislation and a large number of municipalities in those states started or were preparing to launch PACE programs locally.

However, nearly all existing PACE programs were halted in July 2010, when the Federal Housing Finance Agency (FHFA) and the Office of the Comptroller of the Currency issued instructions to Fannie Mae, Freddie Mac and the national banks that effectively froze PACE financing programs nationwide. The result was millions of dollars in federal stimulus funds in limbo, thousands of jobs implementing the projects left on the drawing board, and economic development plans and climate change goals across the country on hold. Lawsuits and proposed legislation followed, in addition to widespread frustration that the regulators had failed to consider the full range of implications of their actions.  You can read about the status of the lawsuits at my colleague Kit Kennedy’s blog.

As described in more detail in Kit’s post today, a court order has forced FHFA to post an “advanced notice of proposed rulemaking.”  FHFA now must turn back the clock on their rulemaking and provide public notice in the Federal Register of their intent to propose a rule on PACE and allow the public 60 days to comment and provide their perspectives on PACE.

NRDC, together with PACENow and a broad bipartisan coalition, are now working hard to ensure that PACE’s supporters make their voices heard and that FHFA properly considers them.  The regulators’ initial July 2010 attack on PACE was a backdoor surprise attack.  Now, the chance to submit comments on the FHFA’s position on PACE could breathe new life into an important vehicle for jobs, the economy, and the environment.

Go to PACENow for more information about how to comment and be a part of PACE’s revival, and see the FHFA’s Federal Register posting for information on how to submit comments. Please make your voice heard to revive PACE!

Alisa Valderrama is a finance analyst with the Natural Resources Defense Council. This piece was originally published at NRDC’s Switchboard.

Related Posts:

• Babylon Steps Up the PACE of Green Jobs: “For Energy Savings, Carbon Reduction and Job Creation”
• Finally, Some Bi-Partisanship on Clean Energy in Congress: PACE Financing Returns

Located in Puget Sound, Bainbridge Island has been a major energy hog — with residents consuming 60% more electricity than the regional utility’s average customer due a large chunk of building stock not being up to modern energy codes.

Residents were offered a choice by the utility: pay for a new substation to support increasing energy demand, or reduce energy consumption. The island chose the latter — and in the process is helping train new workers, save residents money, and illustrate the power of collective action.

Helped by a grant from the Department of Energy’s Better Buildings Neighborhood Program — an initiative created through the stimulus package — island residents have created an online community network for monitoring energy use. In the first winter since the RePower Bainbridge project was rolled out, peak power consumption dropped by 10 megawatts. Over the next few years, the program will also facilitate efficiency upgrades for 4,000 houses and 150 businesses, while training around 65 people.

Watch the video below, produced by Climate Solutions, to see the local action that’s driving change in Bainbridge. You can also check out the Climate Solutions website for more great Solutions Stories.

RePower Bainbridge from Climate Solutions on Vimeo.

by Alon Cohen, Jordan Eizenga, John Griffith, Bracken Hendricks, and Adam James

This piece is a primer for a Center for American report on Rehab to Rent, which can be found here.

Half a million houses, many of them vacant and deteriorating, are languishing in a bloated U.S. real estate market, threatening to turn some cities into ghost towns, undermining the stability of working families, and proving to be an anchor on a shaky economy. Many of these vacant homes, nearly a quarter-million, are controlled by the federal government.

If the situation wasn’t already bleak enough, there are also more than a million additional American homes saddled with delinquent mortgages that are in the process of foreclosure. Chances are many of these homes will also end up as the property of the federal government. The only way to lower the inventory of decaying homes is to find a use for the ones we have before new ones swell the pool. Without assistance, the current “overhang” of foreclosed homes is expected to take four years to work back into the market.

The good news is the Obama administration and independent federal regulators are formulating plans to sell government-controlled foreclosed properties to investors who would bring them onto the rental market. The aim is to reduce the number of vacant homes which depress housing prices and burden the economy while meeting an increasing demand for rental homes. If made affordable these new rentals can help meet the needs of approximately 100 million American households—about half of all renters—who are “rent impoverished” today, meaning they devote more than a third of their monthly income just to housing. This is a key indicator of pent-up demand for new rental housing.

The Federal Housing Administration, or FHA, and the two mortgage giants Fannie Mae and Freddie Mac—both currently in government conservatorship—collectively own about 230,000 foreclosed homes, mostly from mortgages insured or securitized before the housing bubble burst. Unfortunately, only a small subset of these foreclosed properties are in good enough shape and in strong enough markets to be sold directly to families looking for a place to call home. For the rest, low home prices and weak demand for owner-occupied homes mean that selling hundreds of thousands of them into that market will depress prices for a long time to come.

In this paper we lay out a set of priorities for removing a portion of these properties from the glutted for-sale market by converting them to affordable rental units, a process we call “Rehab-to-Rent” or “R2R.”

With home prices slumping and rental demand and rents rising, these government-owned properties could earn a greater return for taxpayers and do more to promote an efficient and resilient housing market if they are taken out of for-sale markets and converted into rental units. Residents of these communities and American taxpayers who are on the hook for homes now owned by Fannie, Freddie, and FHA would be best served if these homes were rehabilitated, potentially retrofitted for energy efficiency, and then rented out at affordable rates.

The Federal Housing Finance Agency, or FHFA, which is responsible for Fannie Mae and Freddie Mac as their regulator and conservator, earlier this year solicited information from companies, community groups, governments, and other stakeholders on how to do this successfully. Our response was one of over 4,000 received, demonstrating a healthy appetite for this program.

When deciding what to do with these properties, we believe FHFA should focus on its congressional mandate to:

• Preserve and conserve the government-controlled assets and property of Fannie and Freddie.
• Ensure Fannie and Freddie support stable and liquid mortgage markets by operating in a financially safe and sound manner even though they are in conservatorship.
• Maximize assistance for homeowners, where warranted, and minimize preventable foreclosures.

We acknowledge a possible tension in this mandate, namely between maximizing short-term return to Fannie Mae and Freddie Mac—likely by selling the foreclosed homes they own to the highest bidder—and stabilizing local housing markets to benefit taxpayers generally by not flooding the housing market with the mass sale of foreclosed single-family homes. But we believe these goals can actually work in tandem if FHFA focuses on maximizing the medium- and long-term returns on these assets, which will in turn stabilize housing markets and neighborhoods hit hardest by the foreclosure crisis.

This paper offers key considerations for any Rehab-to-Rent initiative Fannie, Freddie, and FHA wish to pursue. It expands on the principles laid out in the Center for American Progress’s official response to FHFA’s request for information, focusing on how R2R could best work in the real world to serve multiple goals. This paper focuses exclusively on how a Rehab-to-Rent program could deal effectively with the continuous flow of so-called “real estate-owned,” or “REO” properties—industry parlance for lender-owned foreclosed homes—that are under federal government control. But we believe that its success could pave the way for similar private-sector initiatives to deal with the quarter-million foreclosed homes held by banks and other financial institutions.

This paper is the product of many hours spent with the underlying economic and housing data as well as conversations with stakeholders in both public and private spheres, including institutional investors, community-based nonprofits, rental-property managers, and representatives from federal, state, and local governments. Because many of those with whom we spoke are intimately involved in internal discussions about what to do with government-controlled foreclosed properties, those conversations took place with the understanding that we would not attribute statements to particular groups or individuals.

The results of our research are detailed in the main pages of the report, but briefly here we present a summary of our proposal.

How R2R would work

This paper is built on two assumptions: First, Fannie Mae, Freddie Mac, and FHA should each determine the best way to dispose of its own REO inventory because each of them brings separate business processes, corporate attitudes, and legal and financial tools to managing their portfolio of foreclosed-upon houses. Combining their inventories of foreclosed properties could have benefits to R2R, but the complexity makes it an unlikely prospect.

Second, Fannie, Freddie, and FHA should use multiple methods to dispose of their stock of foreclosed houses—determining which to sell to individual owner-occupants (referred to as the “retail market” in this paper), which to sell in bulk to investors and community groups, and which to hold as assets and possibly rent out through joint ventures for a period of time. Regardless of the configuration, any disposition strategy should target the same goals, namely:

• Maximize the long-term return of foreclosed single family homes to taxpayers • Stabilize local home prices by reducing the glut of foreclosed properties on the market
• Stabilize communities hit hard by the foreclosure crisis
• Expand affordable rental housing in markets with unmet need
• Expand the stock of energy-efficient homes
• Create new jobs and economic activity in depressed areas

With these goals in mind, we’ve set out benchmarks below by which any R2R strategy should be evaluated. Each benchmark may not apply to every government-controlled foreclosed property, but we believe that each should at least be considered for every community where substantial quantities of them exist. Let’s examine these benchmarks more closely.

Benchmark #1: Tailor strategy to the specific needs and market conditions of the community

As FHFA Acting Director Edward DeMarco stated in his testimony before Congress on November 3, 2011, a “single, national program for REO disposition” will not work. FHFA is rightly interested in “proposals tailored to the needs and economic conditions of local communities,” such as employment opportunities, industry mix, income-level, and the age and quality of the housing stock.

What is required instead is a set of criteria that will help FHFA identify a few fundamental traits that make R2R possible in a community and then look to bidders to make the case for viability in that community. Considerations include having sufficient numbers of government-controlled REO properties within a specific geographic area, unmet demand for rental housing, and financial incentive to invest in rental properties.

Benchmark #2: Ensure bidders have a track record and viable plans to rehabilitate and rent the units

If R2R is to have a measurable impact on communities or the balance sheets of Fannie, Freddie, and FHA then it will have to achieve substantial scale—at the very least tens of thousands of homes within a couple of years. Based on our discussions with Fannie and Freddie representatives, these institutions have around 60,000 to 90,000 foreclosed properties available for active sale right now; larger potential investors have told us they would purchase 10,000 to 25,000 properties immediately if they could. If even a fraction of this is achieved, tens of thousands of homes across the country will be moving into the hands of new owners to be held out for rent. A failure by any one of these new owners—even a partial failure, such as a big delay in rehabilitating properties—could have a large impact on the community where those homes are located.

While we don’t harbor idyllic notions of working within a perfect system, a top priority has to be to qualify buyers and property managers based on proven track records in property rehabilitation and market performance as well as demonstrated potential to provide local benefits through community engagement. Fannie, Freddie, and FHA should consider a bidder’s track record in acquiring, rehabbing, and managing scattered-site, single-family homes; primary location of operation; knowledge of the local real estate market; relationships with the community; and, where appropriate, the organization’s history of community and economic development.

Benchmark #3: Acquire properties for R2R in communities that will maximize long-term returns to taxpayers and stabilize housing markets

One of the most prominent issues in FHFA’s request for information was how to get the properties from the hands of the federal government to those who will responsibly manage them for rent. The primary focus here should be selling to responsible buyers under terms that are most likely to maximize long-term returns. In some instances, that may be an auction to a qualified bidder in order to yield the highest immediate reward. In others, a multiyear joint venture where Fannie, Freddie, or FHA holds the title while the joint venture partner rehabilitates, retrofits, maintains, and rents the properties could yield a greater overall return under certain circumstances.

Regardless of the resulting ownership structure, the process for transferring properties from the federal government for R2R must be carefully designed to avoid cherry picking, to accommodate consortiums of bidders and property managers, and to ensure that neighborhood stabilization remains a key consideration.

Benchmark #4: Expand the affordable rental housing market

At a time of high unemployment and stagnant middle-class wages, affordable housing is critical to our economic recovery. The more low- and moderate-income families spend on housing each month, the less they spend in stores, making businesses leery of investing and hiring new employees. People coming out of their homes due to foreclosure need a place to live, as do workers who need to move to find jobs and will need access to affordable rental housing.

Indeed, the need for affordable rental housing is unprecedented in recent history, therefore any disposition plan should include mechanisms to encourage its provision. One way to do this is by encouraging the participation of local community organizations with experience rehabilitating and managing affordable rental properties. But these nonprofits often lack the capital necessary to be competitive with certain classes of investors such as private equity groups. That is why it is important to provide low-cost seller financing to ensure the participation of mission-driven community groups.

Benchmark #5: Provide incentives to property owners to properly renovate properties and undertake economically justifiable retrofits

Hundreds of thousands of steadily deteriorating foreclosed properties sit vacant today. They will need to be rehabilitated before they can be rented. In some cases, especially when the federal government maintains some financial stake in the property through a joint venture (as we discuss later), this provides an opportunity to reduce the total cost of ownership through economically justifiable, energy-efficient retrofits.

Since individual owners will be rehabilitating many properties simultaneously in a relatively short time period in any Rehab-to-Rent program, they will have an opportunity to go beyond mere rehabilitation and improve home energy-efficiency performance through a deeper retrofit at marginal additional cost. If a new owner of these properties, for example, is already replacing windows or heating systems, energy savings can be achieved for little additional cost by installing higher-quality materials and mechanical systems. There are also social benefits of energy-efficient rental housing: it helps lower our dependence on foreign oil, reduces carbon emissions to help combat climate change, and lowers utility bills for tenants, many of whom are low- and moderate-income families.

Retrofits should be encouraged in any R2R program. Through financing and other methods, the federal government can offer incentives to property owners to conduct proven and cost-effective energy and water saving retrofits that can enhance the long-term value of the property.

Benchmark #6: Ensure sufficient measures are in place to monitor compliance

It is a given that with such an ambitious undertaking involving large numbers of buyers, things will occasionally not work as planned. It is imperative that the government sets up strong monitoring and contingency plans in place not to simply mitigate the risk of failure, but also to effectively respond if investors fail to meet certain compliance requirements. FHFA must monitor those who hold formerly government-owned REO properties out for rent and lay out clear penalties for noncompliance.

Fannie, Freddie, and FHA should restrict a poor-performing investor’s ability to acquire more properties, and for the most serious offenders, establish a mechanism for recapturing properties. The federal government should draw on its experience (both good and bad) in previous efforts to transfer properties from government to private entities, such as the Resolution Trust Corporation set up after the savings and loan crisis of the 1980s.

We take a more detailed examination of each benchmark later in this report, but first let’s turn to a detailed assessment of today’s foreclosed property market to understand more clearly how our Rehab-to-Rent approach can help resolve several festering problems resulting from the housing market crash and subsequently slow and uneven recovery.

You can find the full report on Rehab to Rent here.

Alon Cohen is a consultant for American Progress and also serves as senior vice president and general counsel for a Washington, D.C. startup; Jordan Eizenga is a Policy Analyst with the Economic Policy team at American Progress; John Griffith is a Research Associate with the Economic Policy team at American Progress; Bracken Hendricks is a Senior Fellow at American Progress and works at the interface of global warming solutions and economic development; Adam James is a Special Assistant on the Energy Team at the Center for American Progress.

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.

by Shakeb Afsah, Eric Ness and Kendyl Salcito* in a repost

Summary

This follow-up note on the issue of energy efficiency and energy rebound is structured into three parts. We first discuss the shortcomings in the dataset used by Dr. Saunders for analyzing energy efficiency trend and rebound in thirty industrial sectors. Next we discuss that Breakthrough and the New Yorker’s David Owen have offered no convincing analytical evidence to show that the indirect macro level rebound will offset most of the gains from energy efficiency. Then we discuss how Prof. Pielke Jr has overlooked the use of unpublished grey literature by Breakthrough—an issue for which he has shown zero-tolerance in the case of IPCC.  In conclusion we suggest that there should be a proper discussion to evaluate if Breakthrough should retract or revise its rebound report. Specific issues raised by Breakthrough and Prof. Pielke Jr in their blog and emails are addressed in the appendix.

Until the time Breakthrough and David Owen claims can be validated and peer-reviewed, they cannot be used in any meaningful form in policy discussions.

*We have benefitted from our conversations with Danny Cullenward and Jonathan Koomey of Stanford, and Skip Laitner of ACEEE. All errors and opinion expressed in this note should be attributed only to the authors and the CO2 Scorecard Group.

Inappropriate Dataset for Rebound Analysis

In our research note “Energy Efficiency is for Real, Energy Rebound a Distraction” we showed that the energy rebound estimates in Saunders (2010) are either over-estimated, as in the case of the steel sector, or wrong, as in the case of mining and electric utilities. The problems don’t stop there. In addition to weaknesses in the theoretical model and the empirical methodology, the dataset used in Saunders 2010 is itself inappropriate for analysis of energy rebound. All three essential components of his paper—the theory, the empirical econometric methodology and the data – come up short.

There is a simple reason that Saunders’ dataset is not appropriate for analysis of energy rebound and energy efficiency trends: it is a dataset on the monetary value of energy expenditure by industrial sectors at a highly aggregate level. This means that the numbers in the dataset are current values of energy cost reported in million dollars—not in BTU or MWh or Joules, the conventional measures of energy use.  As a result, it is impossible to directly estimate energy efficiency, productivity or intensity in physical units.

How did Saunders convert dollars to energy efficiency?  Using the principle of duality from micro-economics it is theoretically possible to convert the question of production to a question of cost—but it comes with a number of mathematical and statistical assumptions. According to the principle of duality, the production function—how factories produce their goods—is the primal (original) question, and the cost function is its reflection in the mirror—the dual, the doppelganger. All this is fine in theory, but reality tells a different story.

Assumptions Rule

Converting data on energy expenditure to estimates of energy use, rebound or efficiency is fraught with risks. With the number of estimates and assumptions it involves, it’s the mathematical equivalent of estimating the travel time from Washington DC to New York City in a hot air balloon in bad weather. There’s no certainty you’ll arrive at your destination, let alone on a schedule. Saunders’ expenditure data is a hot air balloon, and the accompanying assumptions provided all the weather it would take to send the analysis off course.

One key assumption underlying the application of duality is that energy price is the sole factor driving producers to adopt energy efficient technologies or production processes. Prices definitely matter, but there are many other factors that influence an industry’s technology choices, as discussed in our last week’s research note. Such considerations are excluded from Saunders’ methodology.

Additionally, Saunders suggests that production systems are “adaptable and flexible” and can seamlessly substitute energy for other factors of production. As we pointed out in the electric utility and mining sectors, once an operation starts, managers are often locked into their production processes and technologies, sometimes for decades. This reality defies the image of flexibility that Saunders describes in this video clip (at 6.45 min). Many times producers are not at liberty to change their technology every year; they can tinker at the edges but frequent technological change towards energy efficient systems is not a norm—a point also described in Greening 2000.

Finally, the dataset Saunders uses is highly aggregated for macro level analysis—the big picture assessment—but he attempts to validate it at the micro level. For example, at the 2-digit level of industrial aggregation (as in Saunders’ data), the estimates for primary metal merge the steel sector with iron, aluminum and other non-ferrous metals. Yet Saunders credits the adoption of efficient electric arc furnaces with massive energy rebound for the entire primary metals sector. It’s like using a feather to calibrate a truck scale. As our earlier research note showed, his implied energy efficiency estimate for the steel sector is more than 100% off.

We are not the first researchers to cast doubt on Saunders’ dataset. In early 2011, Skip Laitner of ACEEE, and Prof. Jonathan Koomey and doctoral student Danny Cullenward at Stanford noted the inappropriateness of Saunders’ dataset for energy rebound analysis. Prof. Koomey documented his exchange with Breakthrough on this matter in considerable depth—a note we strongly recommend for all.

The bottom line is that Saunders’s analysis is built on far too many assumptions, which put his results on thin ice. Saunders recognizes the risks associated with these assumptions and lists more than five pages of caveats in his paper. He even notes that “This impressive list of limitations should not be dismissed out of hand by rebound analysts as minor or irrelevant.” Saunders should be credited for making these assumptions transparent, and if this paper were to remain cloistered in academia, these data caveats would serve as essential input for continually improving the research. But once such an unpublished research crosses over into policy discussions, as with Breakthrough’s reports and blogs, the same data caveats should be treated like the fine print of a loan or a credit contract with Banks—the devil is in these details.

The Macro Energy Rebound Illusion

We have already shown that the direct rebound effect of energy efficiency for household, transportation, and industrial sectors is low and tolerable in the range of 0-30%. These sectors together account for most of the energy consumed at the national and global levels. On the indirect rebound effect at the macro level, Dr. Amory Lovins of the Rocky Mountain Institute and Prof. Jim Sweeney of Stanford (Koomey 2011) have already highlighted the problem of double-counting of energy use in Breakthrough’s formulation.

So why has David Owen of the New Yorker argued that “rebound” effects will offset much, most, all, or more than all energy savings from increasing end-use efficiency. Analysts have repeatedly pointed out that re-spending effect at the macro level is capped between 6-8% on average, and explained in detail in blogs at the Rocky Mountain Institute (RMI) and the Council for Foreign Relations (CFR). In fact Michael Levi exasperatedly comments in his CFR blog post: “Schipper basically makes this point to Owen, without the numbers and without confronting this specific example; why Owen can’t see what it says about this particular case is beyond me.”

Owen explained his position in a recent interview:

“For Lee [Schipper], energy is a very small part of the economy – 6 or 8 percent. But looking at it that way understates the role of energy in what we do. If we eliminated energy consumption from the economy our energy consumption [sic] wouldn’t fall 6 or 8 percent, it would completely disappear. Increasingly we are dependent on that primary energy to power almost everything. You see it directly in your personal life when you lose your power. There’s nothing you can do. You can turn on your car to charge your cellphone, as I did, but nothing else in my life worked.”

All that is true but it is neither an evidence of large economy-wide energy rebound nor a validation of the claim that indirect rebound effects can offset the savings from energy efficiency. That removing energy from our economy will shrink it by more than 6-8% means that factors of production in our economy are interlinked perhaps serially with each other in complex ways and their co-existence is necessary for maintaining our economic output at the current equilibrium. Such a notion is captured in a 1993 paper titled “The O-Ring Theory of Economic Development” inspired by the way the space shuttle Challenger exploded due to the failure of one component—the O Ring. David Owen appears to have a similar idea about the role of energy in our economy. He is right. If there is mistake, as in the case of Challenger, and our entire energy supply system goes down, the economic impact will be much more than the 6-8% of the GDP.

But Owen’s argument is incomplete. So far it is an imaginative brainstorm, not a detailed analysis. To prove that the indirect economy-wide rebound effect is large in such a framework of production system, Owen still needs to explain the precise mechanism through which rebound effect has a multiplier effect. It will require a mathematical formulation supported by proper economic concepts and real-world evidence. Once such a mechanism is available publicly it can be reviewed, even empirically tested and there can be substantive discussions of the indirect rebound effect. Indirect macro level rebound has undergone no such process, and we encourage Breakthrough and David Owen to begin a scientific validation.

Dr. Jonathan Koomey has urged the same. He writes: “The normal burden of proof is on those advocating the existence of some unexpected and novel effect to show the underlying causal mechanisms that lead to that result, so the assumptions can be peer-reviewed.” Until the time Breakthrough and David Owen claims can be validated and peer-reviewed, they cannot be used in any meaningful form in policy discussions.

The Honest Broker’s Blind Spot

Our initial research note focused on substantive problems in Breakthrough’s rebound report. Prof. Pielke Jr. reminded us of the importance of protocol and standards for using unpublished research, however, which forced us to closely examine Breakthrough’s own formal reports. Prof. Pielke Jr. in particular has shown zero-tolerance when the Inter-Governmental Panel for Climate Change (IPCC) has used unpublished or non-peer reviewed papers in reports. In his blog post from December 22, 2009 titled “Peer Review in the IPCC” Prof. Pielke Jr. writes:

“This situation highlights the problem of the “laundering of grey literature” associated with IPCC reports, which occurs when an analysis or claim occurs outside the peer review literature and is subsequently cited in the assessment report.”

On January 21, 2010 he told the New York Times that “….he was concerned that, in this case, “a non-peer reviewed source [was] elevated to a finding by the IPCC….”. Similarly on July 12, 2010 once again in his blog he wrote:

“We can conclude unambiguously that the citation of Rowell and Moore by the IPCC was improper as it was not only “grey literature,” but also devoid of scientific support for the claims that it advanced that were repeated in the IPCC.”

These are good principles regarding the use of grey literature. In a quick tabulation of more 1,300 of Prof. Pielke Jr’s blogs between June 13, 2009 and January 16, 2012 we found that nearly 20% of his posts use the terms or the variants on peer-review, unpublished and published.

Yet when it comes to using unpublished research in the energy rebound report by the Breakthrough Institute, where he is a fellow, he turns a blind eye. In Breakthrough’s “Energy Emergence: Rebound & Backfire as Emergent Phenomena” the authors boast a 96-article bibliography. Remarkably, some of the most salient points in the Breakthrough report cite Saunders 2010 as the source. Though Saunders is a published author, his 2010 piece has not, to date, been picked up by a peer-reviewed journal.

Conclusions

We therefore propose that Breakthrough should consider retracting or revising its rebound report. The same applies to the EU Environmental Commission report. Further in the interest of consistency, Breakthrough should adopt and follow the same standard on grey literature as their colleague Prof. Pielke Jr. requires of the IPCC and other such organizations.

Appendix: Specific Response to Breakthrough and Prof. Pielke Jr

Our research note on energy efficiency and rebound, released on January 12, 2012, generated strong endorsements of our key findings and policy recommendation: rebound or not, energy efficiency works. Criticism came in the form of one blog post by Prof. Pielke Jr. and several emails from the Breakthrough team, in which they expressed disagreement with our analysis. There was no direct or specific disagreement with our numbers or statistics that showed that Dr. Saunders’ estimates of energy rebound was either over-estimated or wrong, Breakthrough and Prof. Pielke Jr claimed that (1) we mischaracterize their position on energy efficiency and (2) we don’t understand the difference between energy efficiency and energy intensity. In a response through email to Breakthrough on January 12, 2012 we stated that:

“In our view, BTI is lukewarm at best on energy efficiency and negative to it at worst, and BTI’s emphatic case for rebound and backfire has a clear and logical policy implication: efficiency needn’t be prioritized. We stand by our analysis and interpretation based on our research.”

We think it is important to demonstrate the source of our perception, which is shared by others. While Breakthrough occasionally suggests that energy efficiency is needed, their core message remains that energy rebound under-cuts the savings from energy efficiency enough to fully neutralize it or even increase it.

From the very first paragraph from their flagship report “Energy Emergence: Rebound & Backfire as Emergent Phenomena” Breakthrough casts doubt on the energy efficiency policy stance of the IEA, IPCC, experts like Dr. Lovins and organizations like Mckinsey.

In the second paragraph of their report Breakthrough writes:

“Economists, however, have long observed that increasing the efficient production and consumption of energy drives a rebound in demand for energy and energy services, potentially resulting in greater, not less, consumption of energy.”

The anti-energy efficiency tone continues in the FAQ section of their website, where they write: “…rebound effects mean that for every two steps forward we take in energy savings through efficiency, rebound effects take us one (and sometimes more) steps backwards. We may still move forward, but not as much as we initially expected.” In the deck of Breakthrough’s PowerPoint slides accompanying this report, one slide explicitly questions the energy efficiency estimate of the IEA.

Breakthrough attempts to counter our characterization of their position on energy efficiency by pointing out such comments as:

Q: Are you saying energy efficiency is a waste of time then? Are you arguing against pursuing efficiency?

A: Most certainly not! Truly cost-effective energy efficiency improvements make great economic sense and improved energy efficiency may be a key determinant of future economic welfare. In this sense, it may also contribute indirectly to climate mitigation and decarbonization objectives.”

In our view these are feeble statements supporting only the partial benefits of energy efficiency—improvement in economic welfare, and not how energy efficiency cuts energy use. If Breakthrough is truly supportive of energy efficiency it must retract its emphasis on high energy rebound and backfire, and embrace energy efficiency as a core policy tool for climate management as experts like Amory Lovins and Skip Laitner or organizations like the IEA, IPCC, McKinsey and many others have stated. It is not enough for Breakthrough to be on both sides of energy efficiency—first downplay it using the case of high energy rebound and then try to embrace it by making a few token statements of support.

Energy Efficiency and Energy Intensity

The new report outlines three scenarios under which the U.S. could either continue on its current path or cut energy consumption by the year 2050 almost 60 percent, add nearly two million net jobs in 2050, and save energy consumers as much as $400 billion per year (the equivalent of $2600 per household annually).

According to ACEEE, the secret to major economic gains from energy efficiency is a more productive investment pattern of increased investments in energy efficiency, which would allow lower investments in power plants and other supply infrastructure, thereby substantially lowering overall energy expenditures on an economy-wide basis in the residential, commercial, industrial, transportation, and electric power sectors.

“The evidence suggests that without a greater emphasis on the more efficient use of energy resources, there may be as many as three jokers in the deck that will threaten the robustness of our nation’s future economy,” explains John A. “Skip” Laitner, ACEEE’s director of economic and social analysis.

Examples of potential large-scale energy efficiency savings identified by ACEEE include the following:

• Electric Power. Our current system of generating and delivering electricity to U.S. homes and businesses is an anemic 31 percent energy efficient. That is, for every three units of coal or other fuel we use to generate the power, we manage to deliver less than one unit of electricity to our homes and businesses. What the U.S. wastes in the generation of electricity is more than Japan needs to power its entire economy. What is even more astonishing is that our current level of (in)efficiency is essentially unchanged in the half century since 1960, when President Dwight D. Eisenhower spent his last year in the White House.

• Transportation.   The fuel economy of conventional petroleum-fueled vehicles continues to grow while hybrid, electric, and fuel cell vehicles gain large shares, totaling nearly three-quarters of all new light-duty vehicles in 2050 in the report’s middle scenario. Aviation, rail, and shipping energy use declines substantially in this scenario through a combination of technological and operational improvements. In the most aggressive scenario, there is a shift toward more compact development patterns, and greater investment in alternative modes of travel and other measures that reduce both passenger and freight vehicle miles traveled. This scenario also phases out conventional light-duty gasoline vehicles entirely, increases hybrid and fuel cell penetration for heavy-duty vehicles, and reduces aviation energy use by 70 percent.

• Buildings.   In residential and commercial buildings the evidence suggests potential reductions of space heating and cooling needs as the result of building shell improvements of up to 60 percent in existing buildings, and 70-90 percent in new buildings. The ACEEE scenarios also incorporate advanced heating and cooling systems (e.g., gas and ground-source air conditioners and heat pumps and condensing furnaces and boilers), decreased energy distribution losses, advanced solid-state lighting, and significantly more efficient appliances.

• Industry. In the industrial sector, energy efficiency opportunities reduce 2050 energy use by up to half, coming less from equipment efficiency and more from optimization of complex systems. The ACEEE analysis focuses on process optimization in the middle scenario, but also anticipates even greater optimization of entire supply chains in the most aggressive scenario, allowing for more efficient use of feedstocks and elimination of wasted production.

Are such advances in energy efficiency realistic?

As the ACEEE report points out, the U.S. already has achieved considerable advances in the energy efficiency context and is poised to do more: “The U.S. economy has tripled in size since 1970 and three-quarters of the energy needed to fuel that growth came from an amazing variety of efficiency advances-not new energy supplies. Indeed, the overwhelming emphasis in current policy debates on finding new energy supplies is such that emphasis on new supplies may be crowding out investments and innovations that can help to achieve greater levels of energy productivity. Going forward, the current economic recovery, and our future economic prosperity, will depend more on new energy efficiency behaviors and investments than we’ve seen in the last 40 years.”

This is a news release published by ACEEE. You can find the whole report at the ACEEE website.

Our fact-checking revealed that empirical estimates of energy rebound cited by the Breakthrough Institute are over-estimated or wrong, and they contradict the technological reality of energy efficiency gains observed in many industrial sectors.  For journalists, the Rebound Effect is a trap—it is a man-bites-dog story that never happened.

Energy efficiency policies work, a new study finds, especially when they are broad and deep and sustained, as in the case of California.

by Shakeb Afsah and Kendyl Salcito and Chris Wielga, in a report for CO2 Scorecard

Summary

Energy efficiency is an over-rated policy tool when it comes to cutting energy use and CO2 emissions—that’s the basic message promoted by the US think tank the Breakthrough Institute (BTI), and amplified in major news outlets like the New Yorker and the New York Times. Their logic is that every action to conserve energy through efficient use leads to an opposite reaction to consume more energy—a “rebound” mechanism, which, according to the BTI, can negate as much as 60-100% of saved energy, and in some cases can backfire to increase net energy consumption.

In this research note we refute this policy message and show that the BTI, as well as its champions in the media, have overplayed their hand, supporting their case with anecdotes and analysis that don’t measure up against theory and data….

We provide new statistical evidence to show that energy efficiency policies and programs can reliably cut energy use—a finding that is consistent with the policy stance of leading experts and organizations like the US Energy Information Agency (EIA) and the World Bank. Additionally, we take our policy message one step further—by using new insights from the emerging multi-disciplinary literature on “energy efficiency gap,” we recommend that the world needs more energy efficiency policies and programs to cut greenhouse gases—not less as implied by the BTI and its cohorts in the media.

Download pdf

Is energy efficiency a curse in disguise? This policy instrument, long held in high esteem and considered to be the single most pragmatic choice currently available for cutting energy use and CO2 emissions, has recently come under question.

The past year has been particularly hard on energy efficiency, handing it a major thrashing in the press. Much of the literature behind these news reports flow from a young US think tank called The Breakthrough Institute (BTI). The BTI has applied the concept of a “Rebound Effect” to characterize energy efficiency policies as a medicine whose side-effects outweigh the benefits. Energy efficiency, they say, is self-defeating because it creates incentives for more energy use.

Propagated last year in a number of reports, the Rebound Effect has become another policy dispute on the climate turf. It calls into question the calculations of reputable organizations like the International Energy Agency (IEA), McKinsey & Company, British Petroleum, and PricewaterhouseCoopers (PwC) who estimate that energy efficiency alone can cut greenhouse gases by 25-40%.

The Rebound Effect deserves to be taken seriously, not just because there is an undeniable trend in global energy use to show that humanity has never successfully decreased energy use, but also because the idea is extremely powerful for those seeking reasons to disregard efficiency – whether in support of an alternate climate initiatives or in opposition to climate change in general. If the Rebound Effect can take back as much as 60-100% of energy savings, as implied by the narrative sketched by the BTI, there is no way that the world can achieve the projected reductions in GHG emissions from energy efficient approaches. In essence, the Rebound Effect has the power to derail climate policy as a whole, simply by calling into question energy efficiency.

Recognizing this seriousness, we began a detailed investigation of the economics and the science behind the Rebound Effect. We examined the sources of energy Rebound resurgence, finding that the current polemic against energy efficiency is largely fuelled by a study that is neither published nor peer-reviewed. We review the literature on energy Rebound at household and production-sector levels and identify weaknesses in both the source data and the methodology employed by Rebound’s proponents. We not only disprove the claims of Reboundistas but through our original statistical analysis we reaffirm that energy efficiency policies indeed reduce per capita energy use.

Resurgence of Rebound—Nostalgia for Mr. Jevons

The Rebound Effect has few proponents among economists and energy efficiency scientists, but it resurfaces periodically. In the past year, it has gained significant ground, scoring recognition in The New Yorker, The New York Times, Conservation Magazine, Nature and the blogosphere. First put forth by British economist William Jevons in 1865, the Rebound Effect proposes that energy efficiency is counterproductive, because energy conserved in one sector is automatically put to use in another sector. Jevons’ theory was based on an energy economy that had only coal as a source material and industrial production was the main economic sector. But his argument has been repackaged and repurposed to cover micro as well as macro level impacts. Now it has been extended to question energy efficiency (and carbon emissions reduction) efforts in general.

In its 21^st century incarnation, the Rebound Effect looks a bit different than it did in 19^th century England, encompassing the increasingly diversified energy environment. As the New Yorker presents it, the incentives for conservation – often cost-savings – cancel themselves out by putting money in people’s pockets that they will inevitably spend on some other energy-intensive purchase.

But the New Yorker’s accounting is off. The reporter refers to a friend’s newly remodeled kitchen with enormous side-by-side refrigerators as an example of Rebound, suggesting that this is representative of the greater public. It is unlikely that this friend can afford double Sub Zero’s because he scrimped for many years prior on a super-efficient refrigerator and light bulbs. That wealthier people may refrigerate more food is interesting, but there is no evidence that it correlates to efficient technologies and conservation strategies.

We wondered about the energy consumed by America’s ballooning refrigeration demands and researched using data from the US Energy Information Agency (EIA). The share of US households with two or more refrigerators increased by 5.2% between 2001-05. However, during the same period the total electricity feeding the growing refrigerator use declined by 3.3%, and on per capita and per household basis the decrease was nearly 7% (Table-1). In effect energy efficiency gains, which averaged 3.6% per year since 1990, was sufficient to cut total electricity consumed by refrigerators in US households. The same trend is true for Canada also where the total energy needed for household refrigerators declined by 42% since 1990. Unfortunately, the New Yorker chose to cite populist style anecdote on refrigerators rather than digging into hard data.

Refrigeration removed from the equation, we wondered whether households in general might increase energy intensity over time. Again, we found that energy intensity decreased fairly steadily, regardless of the price of energy, on a per-square-foot basis between 1980 and 2005. This is pictured in Exhibit-2A. We suspect that efficiency standards and technological advancements that cut energy use in residential heating, cooling, and appliance use is a major factor.

We found the same pattern in Canada, where residential energy efficiency programs have been in use since 1982. As shown in Exhibit-2B, residential energy intensity (GJ/m²) declined at an average annual rate of 1.36% in Canada even when the average household size increased over time. There is no doubt that bigger and modern washing machines, refrigerators, and sub-zero freezers are making their way into increasingly large houses in Canada, but on net energy efficiency programs and standards have still led to energy savings. A quick calculation demonstrates the result—if residential energy efficiency had remained stagnant at the 1990 level, Canadians would need an additional 400 million GJ or 111 million MWh of energy in 2008. That is equivalent to eliminating four of the largest power plants in the US.

Yet the gains in energy efficiency failed to stem the increase in the total residential energy consumption in Canada, which grew at an average annual rate of 0.7% during 1990-2008. Could this be Rebound?

On the contrary the culprits for energy use increases are GDP (which increased by 1%) and population (which grew by 2%). If not for efficiency measures (including Canada’s nationwide residential energy efficiency program, R-2000 Standard, which has helped reduce per capita energy use at an average rate of 0.4% per year) total residential energy consumption in Canada would be much higher than 0.7% per year.

Ironically, the point is reinforced in the United States by similar data used in a Washington Post report to prove the limits of energy efficiency. National data shows that per capita average energy consumption in US homes has barely budged since 1970. But the average American home isn’t representative of energy efficiency measures, as comparative long term per capita residential energy trends of California and Texas show. California, which has aggressively followed efficiency programs to cut residential energy use, successfully reduced its residential energy use per capita an average of 0.9% per year. In comparison, Texas did not adopt energy efficiency programs and has seen an average increase of 0.4% per year (Exhibit-3). That the US per capita average for residential energy has remained stagnant suggests that US as a nation has failed to adopt energy efficiency programs uniformly across all states—a sign of policy weakness not energy Rebound.

Our analysis contradicts the Washington Post, the New York Times and New Yorker storylines, and shows that the case for energy efficiency is rather straightforward and clear. Rebound is there but is in the range of 10-30% for households as reported in published literature (Greening et. al. 2000). And for transport, the Rebound effect from fuel efficiency improvements in the US is estimated to be around 10.7% based on the data covering the period 1997-2001 (Small and Dender 2007). This still leaves a net savings of 70-90% that can buck the trend of energy use per capita.

Energy efficiency works. But the real story is that it works best when governments proactively and whole-heartedly embrace energy saving policies and programs over and above the ongoing, often market driven, improvements in home appliances and other technologies.

The Rebound illusion—math doesn’t match the matter

As discussed above, at a residential consumption level the evidence of an energy efficiency dilemma is weak; on the production side the empirics of Rebound are even weaker, though the claims are much greater. In fact, the BTI’s real beef with energy efficiency is on the production side, which they incorrectly claim accounts for “two thirds” of the global energy use (Exhibit-4).

Citing over-estimated production sector energy use, the BTI has forcefully asserted that the production sector and economy-wide Rebound effects can not only wipe out the entire savings from energy efficiency but in some cases can actually increase energy use—a phenomenon called backfire. The primary reference for this conclusion comes from an unpublished paper in 2010 by Dr. Harry Saunders, a Senior Fellow at the BTI. According to Saunders, extreme Rebounds happen due to two simultaneous effects—first efficiency reduces the relative price of energy creating incentives for producers to use more energy, termed the substitution effect. And second, it reduces the price of the final product which causes the demand to increase, which in turn leads to more energy use—the demand effect (Supplemental Exhibit-S1).

Previous efforts to link efficient energy use with firms’ inclination to pursue high-energy activities were estimated at around 0-20% (Greening, et al 2000), retaining 80-100% of the energy efficiency gains. But Saunders (2010) claims that energy efficiency gains in one sector has a chain effect on the entire economy, translating into Rebound of 60-100% or even more. These claims have been refuted by climatologists, journalists, policy advocates, and others, but we sought an additional layer of verification.

Accordingly, we decided to examine Saunders’ paper equation-by-equation, number-by-number. We found several shortcomings, two of which are discussed below. Additional shortcomings will be discussed in a forthcoming working paper by the CO2 Scorecard group. Our findings were so startling that it led us to conclude that Saunders’ estimate on Rebound are not just severely over-estimated but are downright wrong in many cases.

(1) Inconsistencies with real data: Perhaps most problematically, Saunders calculates Rebound in a number of economic sectors without including any specific discussion of the underlying technological change and engineering improvements that actually increased efficiency and triggered Rebound. He essentially regards the increase in energy use as a result of a (stated) increase in efficiency without providing a causal explanation or justification for his Rebound estimates.

In this regard, the Rebound estimates of two sectors caught our attention—metal mining and electric utilities. According to Saunders, metal mining has energy specific Rebound of 51% for the period 1991-2000. During the same period the Rebound for electric utilities is 120%—representing a situation of backfire. Such high energy-specific Rebound implies that energy efficiency gains have been quite pronounced in these sectors – a major reaction can only follow a major action.

In metal mining, estimates by Saunders show that Rebound is driven by energy efficiency improvements estimated to be 2.36% per year. This is contrary to the current reality and expected trend for metal mining; energy intensity is expected to worsen or remain stagnant over time as each mine extracts its metal from a lower grade ore at the margin (ore bodies have steadily declined in grade for decades, as high-grade ore-bodies have been depleted by mining). This fact is reaffirmed by the data on the energy intensity trend of the metal mining sector of Canada (Exhibit-5A), which as expected has remained more or less steady since 1990.

Canada’s data apply well to the US mining sector’s situation, where the benchmark energy intensity is almost identical to Canada’s at 0.36 TJ/kilo-tonne (DoE 2007) compared to Canada’s average of 0.35 TJ/kilo-tonne. Given the convergence of markets and technology, US metal mining is expected to have a similar trend, which begs the question: If metal mining typically suffers from falling or stagnant energy efficiency then where is the Rebound coming from in Saunders’s paper? In a careful examination of the paper we could find no evidence-based support for Saunders’ efficiency estimate.

Saunders’ estimates for electric utilities were equally unsupportable, given the industry’s stagnant (and sometimes negative) energy efficiency trends over time. Because electricity generation technology has a long life span, once installed a production system remains locked-in for 40-50 years. These technologies come with fairly advanced control and automation systems that leave little room for year-to-year technological improvement. Furthermore, with the advent of environmental regulations and tighter air emissions standards auxiliary energy consumption (to power scrubbers, fans, pumps and other control gear) increases in existing, aging power generation facilities, making them less, not more, energy efficient, even as they become “cleaner”. At best, energy intensity will remain stagnant. Canadian power generation and energy efficiency data demonstrate this stagnation (Exhibit-5B).

If energy efficiency improvements are near zero in the metal mining and electric utilities, their energy specific Rebound should also be near zero. Saunders’ estimates, of 51% and 121% respectively, contradict the technological reality and defy logic.

Even in cases where there are genuine improvements in energy efficiency, Saunders’ estimates appear to be exaggerated. In the case of primary metal covering steel production, Saunders estimates energy efficiency gains of 2.9% driven by the electric arc furnace technology (which was introduced in the US in the 70s). However, a US Department of Energy report (Stubbles 2000) shows that the steel sector’s energy intensity fell from 20 to 18 MBtu per ton amounting to only 1.3% per year change during 1990-98, considerably less than the rate of improvement estimated by Saunders. This is indicative of overestimation, which automatically translates into high energy-specific Rebound like the 66% estimated by Saunders.

Saunders’ empirical errors and discrepancies raise fundamental questions about the empirical methodology his paper uses to quantify “vintage effects”—the technological improvements that affect energy efficiency in a production sector.  His results are not just over-estimated but are likely to be out of sync with the reality of technology trends, raising questions about the validity and accuracy of the entire paper.

(2) Deficiencies in the model:  Even if Saunders efficiency estimates aligned with real-world efficiency gains, there would still be major concerns with the theoretical model he employed, which does not capture the real world economics of production decisions of industrial organizations. Many factors that affect the model parameters and prices like labor unions, corporate vision, social norms, strategic behavior, incomplete information, unexpected technological breakthroughs and others are excluded. Instead, Saunders’ model is a generic and simplistic one with a mathematical architecture that by design is only capable of producing results that show increasing demand for factors of production whenever there is an improvement in its productivity or efficiency. So if capital becomes more productive, there will be more investment; if energy efficiency improves there will be more energy use—this is pre-determined by the interplay of equations and assumptions in the model.

The present unemployment rate in the US economy puts his theory in doubt. According to Saunders’ model, improvement in labor productivity will lead to more demand for labor through the same rebound mechanism put forth for energy efficiency. If this were true, governments worldwide would be grateful – unemployment would be at all-time lows, given the latest worker productivity data. But observed economics works differently—for the past few years improvements in labor productivity in the US have barely dented the unemployment rate.

The fact is that Saunders’ and other such multi-sectoral and economy-wide models of rebound (Hanley 2009,  Turner 2009 and Turner & Hanley 2011) are too simplistic and stylized for the task at hand. Blind faith in the results of such mathematical models is risky, and as emerging evaluations show there are important lessons to be learnt for policy analysis (IMF-Independent Evaluations Office 2011, Chapter-4/para-46). We don’t want to imply that Saunders’ statistical technique or other economy-wide models should be discarded, but their results need deeper validation and fact-checking before pitching it for policy decisions.

Three cheers for energy efficiency

Disproving the anti-energy efficiency literature is not enough to do away with Rebound. We must positively prove that energy efficiency policies are quite capable of cutting energy use per capita, and should remain an instrument of choice for governments.

To validate energy efficiency as a desirable policy measure, we must begin with the most credible policy data. The best evidence of this is provided by the energy efficiency policy scorecard of the American Council for Energy Efficient Economy (ACEEE), which we statistically analyze for energy use per capita.

The ACEEE energy efficiency scorecard uses a comprehensive evaluation framework covering public utility programs, transportation policies, energy-efficient building codes, combined heat and power, appliance efficiency standards and state government initiatives (financial incentives, government greening, and eco R&D). It is designed to measure the quality of energy efficiency policies at the state level in the US.

Controlling for factors like electricity and gas prices, per capita income, variations in weather patterns, population density and economic structure, we used a multiple regression model (described in Appendix-1) to statistically verify if the quality of energy efficiency policies as measured by the ACEEE is associated with lower energy use per capita.

Using ACEEE’s 2009 data, we found that a 1% improvement in ACEEE’s energy efficiency score leads to an estimated 0.18% decrease in energy use per capita at the state-level in the US. This is visualized in Exhibit-6 as a downward sloping line depicting the long run average correlation between energy efficiency policy score and energy use per capita. As discussed in Appendix 1, a similar relationship between ACEEE’s energy efficiency score and energy per capita exists for the years 2007 and 2008. This finding confirms that the causal relationship between energy efficient policies and energy use per capita is not a one-year phenomenon but is consistent and statistically significant over time.

These new findings verify what the US Energy Information Administration has been putting forth for over a decade: energy efficiency policies are central to cutting emissions. Just last year the EIA published estimates on building efficiency improvements using best available technologies, but the agency noted that even with the best technology, policies would still need to be in place to promote efficiency. Data further confirm these findings—as shown in the Exhibit-7, California, which is among the most energy efficient states and has pursued efficiency policies since 1974, was able to put a lid on the average per capita electricity consumption for over three decades—in comparison electricity use per capita increased at an annual rate of 1.4% for the rest of the US. If Rebound effects were as rampant as claimed by the Breakthrough Institute, we would not find a robust relationship between energy efficiency policies and lower electricity use per capita trend.

None of this is to say that Rebound is not happening; given that energy use is so pervasive in our economy both energy Rebound and energy conservation occur simultaneously and constantly. But, as our data analysis indicates, on net the policies that encourage energy efficiency create incentives for energy conservation that ultimately outweigh the effect of energy Rebound, leading to comparatively lower  energy use per capita. Total energy use may still increase due to population growth and economic expansion, but without energy efficiency these increases will be much larger.

Journalists and researchers—a note of caution!

For journalists, the Rebound Effect is a trap—it is a man-bites-dog story that never happened. Counter-current climate change reporting is enticing but requires careful analysis. The journalists caught up in the allure of Rebound made two key mistakes—first they used anecdotes to anchor their core message, and second they ignored the voices of leading energy efficiency experts. One man’s refrigerator is not another man’s climate crisis, but it does create a narrative that leaves readers, the energy consumers, wondering about the usefulness of energy efficiency. Reporters should heed experts who are widely recognized for their understanding of energy efficiency, like Dr. Amory Lovins of the Rocky Mountain Institute and Mr. Skip Laitner of the American Council for an Energy-Efficient Economy. Unfortunately Dr. Lee Schipper of Stanford passed away in August 2011, a leading energy efficiency expert whose insights were ignored by a spate of reporters.

Particularly for energy efficiency, journalists have a special responsibility. New emerging research by Harvard and MIT/NYU economists confirm that non-price approaches like information provision and social norms can successfully influence consumer choices towards a more energy efficient lifestyle (Allcott and Mullainathan 2010 and Dietz 2010). Empirical analysis built on this thesis confirmed that informational awareness cut residential electricity use by as much as 2%, an impact that is equivalent to increasing the price of electricity by 11-20% (Allcott 2011). Such results underscore the importance of disseminating reliable and accurate information on energy efficiency, and journalists are well positioned to promote this effort—but it will require responsible and well researched reporting.

Consultants, too, have contributed to mis-communication—the case in point is a European Commission report. This report not only failed to conduct a thorough review of Saunders 2010, but it took its findings at face value and treated it at par with published papers and government reports—a case of false equivalence in literature review that ended up over-stating the incidence of energy Rebound.  As shown in Exhibit 8, this was quickly seized by the BTI to declare that “Rebound debate is over”.

The policy implications of such mistakes are serious—effective instruments like energy efficiency will be underused even more and, and worsen the problem of energy-efficiency gap, a situation characterized by under-valuation of energy costs and less than optimal use of energy efficient products and services. Recently this phenomenon was empirically affirmed by economists (Allcott and Wozny 2011) as well as engineers, sociologists and psychologists (Attari et al. 2010).

Policy messages

Rebound, we agree, occurs constantly. As established in 2000, and noted above, Rebound is estimated to be in the range of 10-30% for residential and transportation sectors, 0-20% for industries, and indirect economy-wide effects remain small—these estimates still hold in 2012. There is no need to revise these estimates upwards, because the new research promoted by the BTI lacks the necessary empirical credence. The bottom-line is clear—if energy efficiency can retain 70-100% of the savings on net, that’s not a bad deal. Given that energy efficiency programs are below-cost or low-cost, and can take us up to 25-40% GHG abatement, there are good reasons to retain energy efficiency as an essential component of the overall climate policy mix.

Our own findings show that ACEEE’s energy efficiency scorecard is a very useful methodology for capturing the quality of energy efficiency efforts of governments. Such approaches should be strengthened and disseminated in developing countries where energy efficiency potential can be tapped early on in the income growth cycle. Further, it is worth emphasizing that to get a full picture of energy efficiency, ACEEE’s approach shows that analysis of policies and programs should be comprehensive covering utilities, buildings, transport, appliances and other aspects—and it is misleading to reduce or compartmentalize such an analysis to a single appliance or just the building codes.

Finally, the world needs more energy efficiency—not less (Luoma 2011). This is the salient finding of new and emerging multi-disciplinary research on energy-efficiency gap. If energy efficiency is not leading to anticipated reductions in energy use, it is due to inadequate adoption of energy efficient products and services, not the Rebound Effect. Governments, therefore, need to apply both non-price and price-based strategies broadly across supply-side and end-use sectors to promote energy efficiency.

Implications for the Breakthrough Institute (BTI)

Thrusting Energy Rebound into climate policy discussions in a way that it pits one policy against the other is a distraction. We believe that the BTI-led anti-energy efficiency campaign hurts our collective effort to develop a comprehensive climate policy framework. By promoting insufficiently reviewed literature that undermines policy solutions to climate change, the BTI is putting tried-and-true ideas into silos.

The BTI’s position on energy efficiency aligns with its overall intellectual approach reflected in from the group’s 2004 “The Death of Environmentalism”, and its more recent 2010 “Post-Partisan Power” and 2011 “Climate Pragmatism.” BTI seeks to be a voice apart from the environmental movement, but its commitment to unique approaches seems to have overridden its commitment to fact. The myopia of Rebound is a microcosm of the narrow perspective taken by proponents of “climate pragmatism” in general. To be pragmatic about climate change, we must tackle it head on; bickering about what policy would be best diverts attention from the essential. The best method for mitigating climate change is a mix of all policies. Rebound tried to remove energy efficiency from the mix; climate pragmatism removes more. Our forthcoming research note will offer a detailed critique of Breakthrough’s climate pragmatism.

Conclusion

Rebound or no rebound, energy efficiency works!

Shakeb Afsah is the President and CEO of the CO2 Scorecard Group; Kendyl Salcito serves as the Policy Communications Specialist for the CO2 Scorecard; Chris Wielga was a summer intern at the CO2 Scorecard.

Q.E.D.

This report was originally published at the CO2 Scorecard. For a list of references and supplemental graphs, you can find the report here.

Related Climate Progress Posts:

• Energy efficiency is THE core climate solution. Part 1: The biggest low-carbon resource by far
• Energy efficiency, Part 4: How does California do it so consistently and cost-effectively?

• McKinsey must-read: U.S. can meet entire 2020 CO2 emissions target with efficiency and cogeneration while lowering the nation’s energy bill $700 billion!
• Turbocharging Energy Efficiency 1: Utility Efficiency Program Budgets Double to $5.4 Billion

• Breakthrough Institute does the full Charlie Sheen: After months of attacking clean energy standards and efficiency, now they flip-flop to defense
• Debunking BTI’s attacks on Obama, Gore, Waxman and Markey, Rachel Carson (!), and top climate scientists

The figures for energy savings aren’t out for 2011. But the IEE report explains that efficiency efforts saved 112 terawatt-hours of electricity in 2010, which is about the same amount of energy used to power more than 9.7 million homes in the U.S. By comparison, the entire German solar-PV fleet generated 18.6 terawatt-hours in 2011 — roughly six fold less than American energy savings programs.

Those savings were achieved at an average cost of 3.5 cents per kilowatt-hour, making it one of the most competitive resources on the market.

Investments in the U.S. are overwhelmingly being driven by utilities that have requirements for increasing efficiency in their territories through state targets. There are now 26 states with targets in place, and most of them are hitting their goals. A recent report from the American Council on Energy Efficiency Economy found that of the 19 states with targets in place for more than 2 years, 13 have hit 100% of those targets.

And those efficiency investments are helping save ratepayers money. According to a recent analysis of the Regional Greenhouse Gas Initiative, funds raised through carbon auctions in the utility sector and deployed for efficiency and clean energy in the Northeastern U.S. will save ratepayers in the region $1.1 billion over the life of the program, and have already created 16,000 jobs.

Related Posts:

• Broader + Deeper = Greater Savings in Energy Efficiency
• Turbocharging Energy Efficiency 1: Utility Efficiency Program Budgets Double to $5.4 Billion
• Breaking News! Energy Efficiency Programs are Working, Saving Consumers Millions

by Brendan O’Donnell and Mathias Bell, cross-posted from the Rocky Mountain Institute

This is part three in a three-part series published at RMI on Turbocharging energy efficiency programs.

When you see the blue ENERGY STAR logo plastered on the side of your TV, you probably think of two things:

• This is an energy-efficient television.
• The federal government is providing me some assurance that the energy savings are real, the latter being more vague—I know the government is behind this somehow…

What you may not know is that some electric utilities are working hard to increase the number of ENERGY STAR appliances being bought.

Traditional utility energy-efficiency programs, especially those targeting mass-market residential customers, have enticed participation mostly through rebates. If a customer saves the receipt for an appliance and mails it in, the utility will cut a check. The ENERGY STAR product is made cheaper for the customer and the utility gets credit for the energy savings.

But for many customers, rebates are a hassle that require a lot of time and effort. As a result, participation rates fall short, even though buying the ENERGY STAR appliance is the smart choice.

To make things easier for customers, some utilities have wisely begun to work upstream with manufacturers, vendors and retailers. Instead of offering the customer rebates, the utilities are providing incentives to product suppliers to ensure that store shelves are stocked only with ENERGY STAR appliances. One upstream program that we think is particularly effective is the Northeast Energy Efficiency Partnership’s (NEEP) Retail Products Initiative.

NEEP is among the programs examined in Turbocharging Energy Efficiency Programs, a new report from Rocky Mountain Institute that examines the best ways for electrical utilities to boost efficiency.

NEEP is a nonprofit organization that promotes energy efficiency throughout the Northeast and Mid-Atlantic regions. The Retail Products Initiative leverages the cumulative buying power of the region’s homes and businesses. Rather than relying on individual campaigns, NEEP’s utility partners negotiate cooperative promotions of efficient lighting, appliances and services with retailers in seven states. The utilities and retailers agree on “buy-downs,” which decrease the final price seen by the consumer. Cooperation among organizations has made promotions consistent across utility territories and has facilitated effective statewide campaigns in Vermont, Connecticut and Massachusetts.

The results have been impressive. In 2010, more than 4,000 retailers stocked their shelves with ENERGY STAR products as part of the initiative. These retailers sold almost 175,000 efficient appliances, with 60-90 percent of the refrigerators, clothes washers and dishwashers on their shelves carrying ENERGY STAR ratings. Utilities paid $23.3 million to achieve these numbers, and customers will save 5 million MWH throughout the products’ lifetimes, which is the equivalent of energy needed for 450,000 homes for a year.

With aggressive energy-efficiency targets, progressive utilities are finding more creative ways to sell and fund their energy efficiency programs. RMI’s Turbocharging Energy Efficiency Programs highlights innovative utility programs and strategies. These utilities are looking to break the mold and achieve dramatically higher savings from their programs. In this report, we include more information about what makes NEEP’s program so effective and also include information on programs administered by:

• New York State Energy Research and Development Authority (NYSERDA)
• Energy Trust of Oregon
• Pacific Gas and Electric
• Xcel Energy
• Palm Desert’s Set to Save

This is the last of three articles to be featured on RMI’s Outlet blog on Turbocharging Energy Efficiency Programs. The first article in the series was written by RMI consultant Mathias Bell and National Resources Defense Council staff scientist Dylan Sullivan. The second article written by analyst Brendan O’Donnell discussed how utilities can achieve higher levels of savings by going broader and deeper.

by Brenden O’Donnell, cross-posted from the Rocky Mountain Institute

This is part two in a three-part series published at RMI on Turbocharging energy efficiency programs.

by Matthias Bell, RMI, and Dylan Sullivan of NRDC, cross-posted from the Rocky Mountain Institute

This is part one in a three part series published at RMI on turbocharging energy efficiency programs.

The utilities in Ohio will tell you that they’re nothing like the energy efficiency leaders in California, Oregon, Vermont, or Massachusetts. Their systems are different and so are the regulations they must follow. But none of that has prevented them from investing in energy efficiency with their customers.

In 2008, recognizing that energy efficiency is the cheapest way to meet energy needs, Ohio’s Legislature passed a law that requires electric utilities to help their customers save energy. Since then, American Electric Power, Duke Energy, and Dayton Power and Light have stepped up those efforts and saved almost twice the amount of energy required by law (.3% and .5% of load in 2009 and 2010, respectively). AEP went from saving almost no energy in 2005 to saving a cumulative 554,000 MWh from its 2009 and 2010 energy efficiency programs, enough energy to power 55,000 Ohio homes for one year.

Utilities in Ohio aren’t the only ones making these changes. They’re part of a national trend. From 2007 to 2010, electric utility efficiency program budgets have gone from $2.7 billion to $5.4 billion. In other words, utilities have doubled the amount they are spending on efficiency in just the past three years. These numbers will only continue to rise. By 2020, program budgets are expected to reach $10.9 billion.

The reasons efficiency programs are growing at such a rapid pace are twofold. First, the leaders in states including California and Vermont are pushing energy efficiency programs more aggressively than ever. California electric utilities invested more than $1.1 billion in efficiency this past year. Efficiency programs in Vermont saved so much energy in 2008 that load growth was negative.

Second, many utilities that traditionally haven’t done so are investing in efficiency, including utilities in Ohio. Other states increasing investment in energy efficiency include Pennsylvania, Illinois, Indiana, Nevada and Arizona. (To see where states stand today, ACEEE’s state energy efficiency scorecard is an excellent resource).

A couple of factors explain this recent momentum, and a lot of it has to do with policy and regulation. 30 states now have Energy Efficiency Resource Standards (EERS), which require utilities to invest in efficiency. EERS have been instrumental in getting utility efficiency efforts started and pushing utilities to achieve new levels of energy savings. In seven states, including Ohio, utilities are required to achieve average savings of at least 2% of load per year over the next decade.

Another factor is more states are changing the way utilities are regulated to support and encourage investment in energy efficiency. Traditionally, most utilities have been governed under a framework that rewards them for increasing energy sales. States have begun to change this model by breaking the link between energy sales and financial health, ensuring that utilities are able to cover their fixed costs even as energy efficiency efforts decrease sales. Today, 14 states and the District of Columbia have “decoupled” fixed cost recovery from sales; this change is pending in six states. Another nine states have adopted lost revenue adjustment mechanisms, which allow a utility to recover revenue foregone as a result of energy efficiency programs (NRDC does not generally support lost revenue adjustment mechanisms, for reasons discussed in this recent FAQ published in the Electricity Journal.)

In addition to decoupling, more states are giving utilities the opportunity to earn money when they perform well in improving efficiency, which is critical because utilities are usually able to earn a return only on investments in power plants, transmission lines, and the distribution system. In Ohio, both AEP and Duke have performance incentives in place that allow them to benefit when they exceed the legislated targets.

Rocky Mountain Institute’s recent publication Turbocharging Energy Efficiency Programs highlights strategies utilities should embrace as they pursue more energy efficiency. The leaders in energy efficiency — Massachusetts and California, as we discussed earlier — have been employing some of these strategies for years. In Ohio, which is just beginning its energy efficiency efforts, AEP is excelling at collaboration, for example. It is working with utilities and other stakeholders to increase compliance with building energy codes and has an excellent working relationship with its energy efficiency advisory group.

But probably no utility has excelled in all areas highlighted in the report: making marketing work, improving sales execution, driving down transaction costs, and the aforementioned collaboration. As utilities face more aggressive goals for energy savings, and increasing costs for building new energy facilities, they’ll have to employ all of the strategies to be successful.

— This article is a joint effort between Rocky Mountain Institute and Natural Resources Defense Council. The authors are RMI consultant Mathias Bell and NRDC staff scientist Dylan Sullivan. This is the first of three articles to be featured on RMI’s Outlet blog on Turbocharging Energy Efficiency Programs. The remaining two, to appear on the next two Thursdays, will outline best practices and provide a case study.

Aside from the mind-boggling disparity between the science and politics of climate change, I’ve never seen such a large gap between perception and what’s actually happening on the ground.

Of course, we can’t ignore the enormous challenges — from cheap natural gas to relentless competition in manufacturing — that will lead to the death of many of the companies we know today. That is part of the natural (and sometimes violent) shake-out we can expect to see in years to come.

However, in order to add to our “climate solutions menu” on this site and cut through some of the recent political attacks, we’ve added more stories on the positive trends in clean energy. Here are some of our favorites from the last year (with some of our best clean energy charts of the year):

Clean Energy Stunner: Renewable Power Tops Fossil Fuels for First Time

Even with a severe financial crisis in Europe and the continued malaise in the U.S., renewable energy surpassed fossil fuels for the first time in new power-plant investments in 2011.

Solar is Ready Now: ‘Ferocious Cost Reductions’ Make Solar PV Competitive

This great series of charts shows just how cost-competitive solar photovoltaics have become with new coal and nuclear plants in the U.S.

Regional Greenhouse Gas Initiative Adds 16,000 Jobs and $1.6 Billion in Value to Northeast Economies, Study Finds

While RGGI was being implemented, conservative groups like Americans for Prosperity claimed the regional cap and trade program would drive rates up 90%. An independent analysis shows that after three years, the program has set a course for $1.2 billion in ratepayer savings.

Pension Funds and Big Companies to Invest Over $1.6 Billion in Energy Efficiency Projects

This year saw a couple record-setting, private-sector investments in efficiency, proving once again that the biggest companies in the world see enormous value in reducing energy.

Google Map Reveals Massive Geothermal Potential Nationwide, “Effectively an Unlimited Supply” Says Chu

The geothermal industry has had its share of troubles financing and building projects in the last couple of years. But a new Google-funded map shows that technically exploitable geothermal resources in the U.S. are equivalent to 10 times our current coal capacity.

Green Jobs Reach 2.7 Million: The “Clean Economy” Starts Delivering on its Promise of High-Wage Jobs, Brookings Finds

Despite what we hear from politicians who call green jobs “progaganda,” a Brookings Institute report released this summer showed “torrid” growth in high-paying, export-heavy green jobs around the U.S.

Google Phases Out Clean Energy R&D in Favor of Deployment, Citing the “Compelling” Cost Reductions in Solar PV

With over $915 million in clean energy investments to date, Google is emerging was one of the leading players in renewables and efficiency. In order to make a more immediate impact on the market, the tech giant has switched its focus from R&D to deployment.

Solar Stunner: America is a $1.9 Billion Exporter of Solar Products

With a high-profile trade war against the Chinese brewing in the solar market, it’s often forgotten that the U.S. is actually a net exporter of solar products to China and the rest of the world. With 73 cents out of every dollar spent on a solar installation staying within the U.S., this sector is providing immense domestic value.

What Free Market? Subsidies Have Always Been a Big Part of Energy Industry, New Report Shows

Opponents of strategic government investments in clean energy seem to forget the past. A report on historic government investments showed that the federal commitment to oil and gas was five times greater than the commitment to renewables during the first 15 years of a subsidy’s life.

Polling Reveals That Being Anti-Clean Energy is Bad Politics

Anyone watching the presidential primaries has seen an astonishing reversal from candidates on climate science and support of clean energy. It turns out, that negative rhetoric can actually have negative consequences for candidates.

See any we’ve missed — either on Climate Progress or on other sites? Tell us what your top stories are in the comments section.

The shutdown-averting budget bill will block federal light bulb efficiency standards, giving a win to House Republicans fighting the so-called ban on incandescent light bulbs.

You’ll find that misleading lede filed in the Politico under “GOP wins light bulb fight” with the even more misleading blurb, “The budget bill gives a victory to House Republicans fighting the ban on incandescent bulbs.”

Except, of course, there was no “ban on incandescent bulbs.”  As a leading manufacturer explained to Climate Progress in July:

“The reality is, consumers will see no difference at all. The only difference they’ll see is lower energy bills because we’re creating more efficient incandescent bulbs.”

The only victory is for the right wing media that kept lying about the issue (see “Led by Murdoch Outlets, Conservative Media Misled Light Bulb Consumers 40 Times In 7 Months“).

Oh, and there was a victory for the extremist Tea Party wing of the party, which opposes all government standards, even ones that the lightbulb industry itself wants and that would save households an average of $100 annually — which is to say it would save consumers $12 billion a year.

As E&E News (subs. req’d) reports, the non-deluded majority understand how nonsensical this “victory” is:

“In the real world, outside talk radio’s echo chamber, lighting manufacturers such as GE, Philips and Sylvania have tooled up to produce new incandescent light bulbs that look and operate exactly the same as old incandescent bulbs and give off just as much warm light,” Republicans for Environmental Protection Policy Director Jim DiPeso said in a statement. “The only different is they produce less excess heat and are therefore 30 percent more efficient. What’s not to like?”

Blocking the standards effectively serves as a slap in the face to light bulb manufacturers, who have been working since 2007 to produce the new bulbs.

“Eliminating funding for light bulb efficiency standards is especially poor policy as it would leave the policy in place but make it impossible to enforce, undercutting domestic manufacturers who have invested millions of dollars in U.S. plants to make new incandescent bulbs that meet the standards,” a coalition of dozens of lighting manufacturers, efficiency groups and environmentalists said in a letter this week to senators.

And it would disrupt the marketplace, supporters of the standards say, because individual states could still implement the standards. California, in fact, already is enforcing them.

“It would create a patchwork of enforcement that would be nightmarish for the industry,” said a lighting industry executive.

Nightmarish for the industry.  Costly for consumers.  Undercutting U.S. competitiveness.

So how did this inane provision stay in the final deal?

The rational folks turned wobbly and the extremist dim bulbs stood their ground.  Sound familiar?  Politico  spells it out:

After giving up in recent weeks on dozens of other riders aimed at stopping EPA rules because of opposition from Senate Democrats and the White House, Rep. Joe Barton (R-Texas) told POLITICO that the light bulb rider was “going to be in there.”

“Speaker [John] Boehner to Chairman [Fred] Upton to Chairman [Hal] Rogers, they all strongly support keeping it in,” said Barton, who served as ranking member of the Energy and Commerce Committee in 2007 when the light bulb language got approved. “And it’s a personal commitment because of their philosophy.”

The White House was not publicly spelling out which riders it didn’t want in the final spending package, with communications director Dan Pfeiffer only saying Wednesday that the House GOP plan would “undercut environmental protections.”

On Twitter, Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-N.M.) wrote: “I strongly oppose that language. I hope it’s deleted from any final bill that we pass.”

House Democrats recalled Upton was an original co-sponsor of the light bulb provision inserted in the 2007 energy law and bemoaned his rightward shift since running last fall for Energy and Commerce chairman.

“This is just another poke in the eye,” said Rep. Jan Schakowsky (D-Ill.).

“It’s the power of Michele Bachmann and the presidential campaign,” added Rep. Peter Welch (D-Vt.), a member of the Energy and Commerce Committee that approved the original language. “What can I say? If we can solve the energy problem with the outcome on the light bulb, America would be a great place.”

… Rep. Mike Simpson (R-Idaho), chairman of the Interior and environment appropriations subcommittee, said Senate opposition to the light bulb provisions had up to this point been minimal.

“Amazing, isn’t it?” he said. “They objected to all the other EPA riders and stuff. That was the instructions from the White House. But apparently the light bulb ones didn’t bother them too much.”

Amazing?  How about “pathetic”?

Related Post:

• Rep. Fred Upton Eats His Own: Congressman Pushes Vote to Kill His Light Bulb Efficiency Standards

• How Many Republicans Does It Take to Screw Up Our Light Bulb Savings? David Edison Sloane:  My great-grandfather would be all for keeping intact the Energy Independence and Security Act. The law requires light bulbs of all types to be at least 25 percent more energy efficient by 2012. To [Thomas Alva] Edison, that would have been no big deal. He would have immediately embraced the challenge of reducing the power usage of the incandescent light bulb — and regarded it as a great opportunity to offer consumers a better and more ecologically sound product

While you’re busy preparing for the holiday season, use these energy efficiency smartphone apps to save energy, money and time. It’s energy efficiency in the palm of your hand!

by Jorge Madrid and Matt Kasper

Last week President Obama, with the help of former President Bill Clinton and other partners including the Center for American Progress, flexed some executive power to leverage $4 billion in government and private sector funds to finance energy efficiency building projects across the United States – creating jobs, reducing pollution, and cutting energy costs.

“The Trifecta” President Obama called it.

With commitments to retrofit over 4 billion square feet of commercial real estate, American construction and manufacturing workers will be getting back on the job — at zero cost to taxpayers.

That’s right. The investment will pay for itself by way of energy savings.

The executive order will direct all federal agencies to make at least $2 billion worth of energy-efficiency upgrades in the next two years. This investment will be matched dollar for dollar by a coalition of over 60 private-sector companies, including 3M, Alcoa, GE and Southern California Edison, along with nonprofit organizations, state and local governments and universities, to upgrade a minimum of 1.6 billion sq. ft. of commercial and office space.

The efforts were made in response to a challenge set by President Obama earlier this year called the Better Buildings Initiative, a program that would achieve 20 percent energy saving by 2020, saving American business’ nearly $40 billion every year in energy costs. Former President Clinton, who was asked by President Obama to help lead this Better Buildings challenge, spoke forcefully on the economic common sense of moving forward immediately on energy efficiency:

“The best opportunity to preserve and rebuild this economy is through energy efficiency… I believe as strongly as I can say that this is good business, creates jobs, makes us more energy independent and helps to fight climate change.”

Other partners made specific pledges for retrofits, including major commercial banks like Citi, industry voices like the Chamber of Commerce, global real estate investors like the Lend Lease Corporation, and a broad cross section of other organizations. Most striking was the commitment of organized labor into pension funds to support these projects — making them investors in the future by helping develop the next generation of smart and clean infrastructure jobs.

Bracken Hendricks, a senior fellow at the Center for American Progress who helped bring these investments together, lauded the effort:

“This is big news, and the leadership vision of these two U.S. Presidents has made this accomplishment possible. The Center for American Progress is proud to have played a key role in developing the Better Buildings Initiative and engaging public and private partners in this vital work.”

While action in Congress is at a standstill, this project shows the immense progress that can be accomplished outside of legislative action.

Jorge Madrid is a research associate with the energy policy team at the Center for American Progress; Matt Kasper is an intern with the energy team at CAP.

Related Post:

• Energy efficiency is THE core climate solution. Part 1: The biggest low-carbon resource by far

What will a day in the life of a Californian be like in 40 years? If the state cuts its greenhouse gas emissions 80 percent below 1990 levels by 2050 — a target mandated by a state executive order — a person could wake up in a net-zero energy home, commute to work in a battery-powered car, work in an office with smart windows and solar panels, then return home and plug in her car to a carbon-free grid.

Such is a future envisaged in a study published Nov. 24 by the journal Science that analyzes the infrastructure and technology changes needed to reach California’s aggressive emissions reduction goal. The study was conducted by scientists from the U.S. Department of Energy’s Lawrence Berkeley National Laboratory (Berkeley Lab) and the San Francisco-based energy consulting firm Energy and Environmental Economics (E3).

How to get from here to there: Seven measures reduce California’s emissions from 875 million metric tons of CO2 in the 2050 baseline case to 85 million metric tons of CO2 emissions in the mitigation case.

The researchers describe a not-so distant time in which lights, appliances, and other devices are pushed to unprecedented levels of energy efficiency. Electricity is generated without emitting carbon dioxide into the atmosphere. And most importantly — even after these measures are implemented — cars, heating systems, and most other equipment that now run on oil and natural gas will instead be powered by electricity.

The scientists say that all of this will be technologically feasible by 2050 if today’s pace of innovation continues.

“This study is meant to guide decisions about how to invest in our future. Assuming plausible technological advances, we find that it’s possible for California to achieve deep greenhouse gas reductions by 2050,” says Margaret Torn, the corresponding author of the paper and a staff scientist in Berkeley Lab’s Earth Sciences Division. Jim Williams, chief scientist at E3 and professor at the Monterey Institute of International Studies, is the lead author of the paper.

“To reach this goal, energy efficiency comes first, followed by decarbonization of electricity generation, followed by the electrification of transportation and other sectors,” says Williams.

The scientists developed this prescription using a model of California’s greenhouse gas emissions from 2010 to 2050 that takes into account the state’s changing population, economy, and physical infrastructure. The model includes six energy demand sectors (residential, commercial, industrial, agriculture, transportation, and petroleum industry) and two supply sectors (fuel and electricity).

They explored the best ways to reach California’s goal of reducing greenhouse gas emissions in 2050 by 80 percent below 1990 levels. This target is consistent with the Intergovernmental Panel on Climate Change’s Fourth Assessment Report, which outlines the global emissions required to stabilize atmospheric concentrations at 450 parts per million. In California, this means a sharp reduction in CO₂ emissions per year from 427 million metric tons in 1990 to 85 million metric tons in 2050.   

The scientists started with this 85 million metric ton target and worked backwards to determine the changes needed to get there. They arrived at four mitigation scenarios, all of which rely on three major energy system transformations. Among the findings:

Energy Efficiency Comes First

Energy efficiency has been the low-hanging fruit for decades when it comes to reducing energy demand, and will likely remain so. The scientists found that energy efficiency improvements will net 28 percent of the emissions reductions required to meet California’s goal. The catch, however, is that energy efficiency will have to improve by at least 1.3 percent per year over the next 40 years. This is less than the level California achieved during its 2000-2001 electricity crisis, but it has never been sustained for decades.

The scientists found that the largest share of greenhouse gas reductions from energy efficiency comes from the building sector via improvements in building shell, HVAC systems, lighting, and appliances.

Next, Decarbonize Electricity Generation

Another 27 percent reduction in emissions comes from switching to electricity generation technologies that don’t pour carbon dioxide into the atmosphere. Renewable energy, nuclear power, and fossil fuel-powered generation coupled with carbon capture and storage technology each has the potential to be the chief electricity resource in California. But they all must overcome technical limitations, and they’re all currently more expensive than conventional power generation.

Because it’s unclear which technology or technologies will win out in the long run, the scientists developed three separate scenarios that emphasize how each can reach the target, plus a fourth scenario that includes a blend of all three.

In addition, they determined that Californians can’t rely on renewable energy alone. At most, they found that 74 percent of the state’s electricity could be supplied by sources such as wind and solar. The scientists also stressed that a renewable energy-intensive grid will require breakthroughs in energy storage and ways to enable smart charging of vehicles, among other technologies.

They also found that 15 percent of the required emissions reductions could come from measures to reduce non-energy related CO₂ and other greenhouse gas emissions, such as from landfill and agricultural activities. And 14 percent could come from various unrelated technologies and practices such as smart planning of urban areas, biofuels for the trucking and airline industry, and rooftop solar photovoltaics.

And Finally, Goodbye Gas, Hello Electrons

Even after these emission reduction measures are employed, the scientists still came up short in ensuring California meets its emissions reduction goal by 2050. So they turned to cars, space and water heaters, and industrial processes that consume fuel and natural gas.

They determined that most of these technologies had to be electrified, with electricity constituting 55 percent of end-use energy in 2050, compared to 15 percent today. Overall, this nets a 16-percent reduction in greenhouse gas emissions, the final push needed to achieve an 80-percent reduction below 1990 levels.

The largest share of greenhouse gas reductions from electrification came from transportation. In the study, 70 percent of vehicle miles traveled — including almost all light-duty vehicle miles — are powered by electricity in 2050.

“The task is daunting, but not impossible. California has the right emissions trajectory with Assembly Bill 32,” says Williams, referring to California’s 2006 emissions legislation. “And it isn’t a matter of technology alone. R&D, investment, infrastructure planning, incentives for businesses, even behavior changes, all have to work in tandem. This requires policy, and society needs to be behind it.”

– Dan Krotz, originally published at the Lawrence Berkeley National Laboratory website.

Related Post:

• California study Confirms Optimal Climate Strategy: Deploy, Deploy, Deploy, Research and Develop, Deploy, Deploy, Deploy

But the all-Solyndra, all-the-time stenographers of the status quo at the Washington Post put out this context-free nonsense:

If you read the Post article (wearing multiple head vises), you’ll see that Mufson and the Post don’t understand the first thing about venture capital nor have they done even the minimal amount of homework on the myriad major independent studies of the value of clean energy research.

You’d never even know from the article that most private sector VC investments go bankrupt or have no positive return.  It is a risky business that investors put money into for the few really big wins.  You’d never know that VC  investments are judged by their portfolio return — and by that criteria you would have to say that federal clean energy investments are wildly successful.  I reviewed the data on this in a 2008 post, which I’ll update below.

First, though, let me quote from the Post:

An Energy Department report in 2008 estimated that the federal government had spent $172 billion since 1961 on basic research and the development of advanced energy technologies.

What does Washington have to show for these investments? And should the government even be in the business of promoting particular energy technologies?

Some economists, executives and financiers — as well as Energy Secretary Steven Chu — argue that the government must play a role because certain technologies have non-financial benefits, such as producing fewer greenhouse gas emissions or easing U.S. reliance on foreign oil.

Actually, experts support clean energy investments because they have such huge financial benefits, as we’ll see.

But first, the following chart from that report shows just how grossly misleading the Post’s attack is:

Yes, the Post uses the $172 billion figure to create outrage  over how much the federal government has spent on energy research, but the overwhelming majority of it didn’t go to energy efficiency and renewables.  The Post makes the briefest passing mention to a key point:

Many policy experts say some of government’s biggest energy investment payoffs have come in the small stuff, such as testing the use of magnesium alloys to make lightweight car batteries more efficient or developing ballasts that make compact fluorescent bulbs more efficient.

Actually, it isn’t just “many policy experts” who says this, it is the National Academy of Sciences, among others.  And their findings invalidate the Post’s entire analysis.  Here’s the back story.

I was at the US Department of Energy when the Gingrich gang took over and tried to shut down all of DOE’s applied energy research, claiming it was a waste of the taxpayers money. I helped organize a major report documenting the large return to the US taxpayers of federal spending on energy efficiency (and other energy technologies). The once-honorable GAO (formerly General Accounting Office, hypocritically renamed Government Accountability Office) didn’t want to meet the same fate as the Congressional Office of Technology Assessment, so it became a wing of the Gingrich hit squad.

The GAO tried and failed to debunk the report, but the end result was a request to the National Academy of Sciences to independently verify the stated benefits of DOE energy research. The ensuing report Energy Research at DOE: Was It Worth It? Energy Efficiency and Fossil Energy Research 1978 to 2000 was a stunning vindication:

… the report examines 17 R&D programs in energy efficiency and 22 programs in fossil energy funded by the U.S. Department of Energy (DOE). These programs yielded economic returns of an estimated $40 billion from an investment of $13 billion.

Three energy-efficiency programs, costing approximately $11 million, produced nearly three-quarters of this benefit. Most significant were advances made in compressors for refrigerators and freezers, energy-efficient fluorescent-lighting components called electronic ballasts, and low-emission, or heat-resistant, window glass. Standards and regulations incorporating efficiencies attainable by these new technologies ensured that the technologies would be adopted nationwide, thus dramatically compounding their impact.

Let me expand on that last point: The handful of energy technologies cited above, developed through funding by my old office, the Office of Energy Efficiency and Renewable Energy, have returned about $30 billion on an R&D investment of about $400 million. I defy anybody to identify an independent report from a body as credible as the National Academy showing such a staggering return on investment for US taxpayer dollars.

Of course, you can’t know a priori which investments will pay off and which won’t, so you need to invest in many technologies, just to have a few winners. The GAO actually argued in a Congressional hearing where I was a DOE witness that if the DOE invested in 10 technologies for $10 million, and nine of the technologies failed, but one of the technologies saved taxpayers $100 million, that the entire effort was a waste of money. Such was the logic of the Gingrich Congress.  Such apparently is the logic of the Washington Post.

I would add that the above numbers do not even count the environmental benefit of reducing pollution, although the report notes that, on the whole, the energy technologies in the report avoided “more than $60 billion in damage and mitigation.” And even that estimate does not include any benefit from carbon reductions.

Significantly, the way we did the benefit analysis was quite conservative by nature. We did not assume a technology funded by the DOE would never have been commercialized, only that the DOE involvement accelerated the date of commercialization by 5 years.

I have said many times that I do not believe that we need Apollo program aimed at technology breakthroughs to solve our energy problems (See “The breakthrough technology illusion“).

But clean energy R&D and demonstration and deployment is going to be severely underinvested in until the full harm to society of  fossil fuel use is reflected in its cost (see Economics Stunner: “Oil and Coal-Fired Power Plants Have Air Pollution Damages Larger Than Their Value Added”; Natural Gas Damage Larger Than Its Value Added For Even Low CO2 Prices — and Life-cycle study: Accounting for total harm from coal would add “close to 17.8¢/kWh of electricity generated”).

Energy efficiency is especially underinvested in because the biggest barriers to deployment are not better technology but flawed regulations (see, for instance, “Why we never need to build another polluting power plant“). Also, the upside of low carbon technologies is immense for the industries involved, but companies that make commercial and industrial products and processes themselves see very little benefit from developing a widget that uses 10% less energy with a 4-year payback.

So I very much think that we should have an aggressive energy efficiency development and deployment program that is several times larger than today. Indeed, in 1997, the President’s Council of Advisors on Science and Technology (PCAST) recommended doubling the energy efficiency budget from $450 million to $880 million, noting “the return for this portion of the government investment would be on the order of 40 to 1–a cost to the government of about $5 per ton of carbon” with annual fuel cost savings of $75 to $95 billion in 2020, and reductions in oil consumption of 4 to 10 million barrels of oil a day by 2030.

So the government appears to be a very good venture capitalist when it comes to clean energy.  Can anyone in the media get this story right?

Related Posts:

• Energy efficiency is THE core climate solution, Part 1: The biggest low-carbon resource by far
• Part 2: The limitless resource
• Part 3: The only cheap power left
• Part 4: How does California do it so consistently and cost-effectively?