May 28, 2013 — Over the past decade, energy efficiency has come to be seen as a fast, cheap and even profitable way to reduce greenhouse gas emissions. Increasing the efficiency of buildings, vehicles, appliances and industry plays “a key role” in climate mitigation scenarios created by the U.N. Intergovernmental Panel on Climate Change. As governments face political opposition to costly climate policy measures, energy efficiency offers a tantalizing promise of a win-win for both the environment and the economy.
Detailed reports from energy analysts and consulting groups — including the International Energy Agency, McKinsey and Company, and the Rocky Mountain Institute — lend legitimacy to bullish efficiency prospects. IEA’s latest World Energy Outlook touts energy efficiency’s potential to “realize huge gains for energy security, economic growth, and the environment.” It claims an $11.8 trillion global investment in efficiency through 2035 would yield $18 trillion in higher economic output while allowing global carbon dioxide emissions to peak by 2020. An influential 2009 report from McKinsey analysts argued that the U.S. could cut its annual energy use by 23 percent through 2020, abating one-sixth of U.S. carbon emissions and yielding a net savings of roughly $700 billion. And Reinventing Fire, an efficiency-centered roadmap for the U.S. authored by Amory Lovins and published by RMI in 2012, promises to cut projected energy consumption 40 percent while delivering $5 trillion in net energy savings by mid-century.
But behind the scenes a growing number of economists and energy analysts are challenging the assumptions and methods behind these studies. None of them argues against seizing truly cost-effective energy efficiency opportunities. Rather, they caution against overestimating their energy and carbon savings potential. As such, it is time to rethink the privileged place efficiency has taken in the climate and energy strategies of national governments and international agencies.
Between 1860 and 1990, the global economy “decarbonized” — reduced how much carbon is required to produce a given unit of economic output — at a rate of 1.3 percent per year. Over the last decade, as coal and heavy industry fueled rapid growth in China and other nations, decarbonization slowed to 0.4 percent per year.
If the world hopes to stabilize atmospheric carbon emissions at 450 parts per million, the target for preventing global temperatures from rising by more than 2 degrees Celsius above preindustrial levels, the decarbonization rate must accelerate to at least 4 percent annually — a 10-fold increase above the last decade’s rate, or three times the 1860–1990 rate, which is an enormous challenge.
The rapid global efficiency gains posited by RMI, McKinsey or IEA are unprecedented.
There are two ways to accelerate decarbonization. The first is to reduce the energy intensity of the economy — how much energy is required to produce a unit of economic activity. Over the past century, energy intensity has improved worldwide by about 1 percent per year. The second is to decrease the carbon intensity of the energy supply — carbon dioxide per unit of energy produced. This has improved more modestly, at about 0.3 percent per year in the 20th century, slowing to about zero over the past decade.
The rapid global efficiency gains posited by RMI, McKinsey or IEA are unprecedented. IEA places more than half of the burden of decarbonization on improving energy intensity, about 2.4 percentage points of an overall 4.2 percent annual decarbonization rate. To achieve that target, global energy intensity would need to decline 2.4 times faster than it has over the past century.
Only four of the 26 developed (OECD) nations we studied — Ireland, the U.K., the U.S. and Poland — achieved energy intensity declines of 2 percent per year or greater between 1971 and 2006, a period that began with energy price shocks and strong measures by nations to increase energy efficiency. Moreover, much of the energy intensity decline in these countries was the result of broad economic changes unrelated to energy efficiency policies.
In the U.S., California is often held up as the real-world proof that efficiency can be radically increased at a profit because per capita electricity use in California has fallen flat since the early 1970s, while energy demand in the rest of the U.S. continued to rise. In fact, a variety of factors unrelated to the state’s efficiency policies explain more than three-quarters of the divergence, according to a study by Anant Sudarshan and James Sweeney of Stanford University’s Precourt Energy Efficiency Center.