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.
Historical Perspective
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.
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To me, the bottom line here is that large energy efficiency gains are physically possible, and are probably necessary steps to addressing our energy and climate challenges. But, as this essay and partner report show, they are not going to be as easy or as automatic as many have suggested before.
Okay, that's good to know. Hard work is needed here. And we may need to work harder on decarbonizing energy sources in parallel with this effort.
But I would love to understand why certain efficiency efforts have worked better than others, and what we can learn from them? And what policy and market instruments could help accelerate efficiency gains?
I'd really hate to see us give up on possible efficiency gains. What would it take to realize them? To me, that's the big question.
Thanks for the thoughtful article.
One has to wonder how often and how long a consultant can be wrong before people stop paying attention and stop granting the "energy guru" status.
There have been only a few times in the past 150 years when energy use actually declined, and each of those times was associated with terribly economic consequences. Recessions effectively reduce energy demand growth, but that is a strategy that only a misanthrope can love.
We know how to produce safe nuclear power plants; we've been doing it since before Lovins published his "anything but nuclear" article.
I often remind people of a quote from a Lovins appearance on Democracy Now! in July 2008:
"You know, I’ve worked for major oil companies for about thirty-five years, and they understand how expensive it is to drill for oil."
I am pretty sure that Lovins is clever enough to know that energy efficiency will never work as well as he claims. I am also quite confident that his clients in the oil and gas industry are happy as long as his exaggerated efficiency predictions discourage people from taking the nuclear-energy-enabled decarbonization path that the French and the Swedes proved works fine and lasts a long time.
After all, countries that have built a lot of nuclear power stations have seen a permanent drop in their fossil fuel demand.
I want to pick up on one key point in particular:
"To be clear, rebound effects, particularly in emerging economies, mean consumers and firms are using energy efficiency to enhance their economic welfare, getting more energy services out of the same or less overall energy use. That’s a fundamentally good thing. That said, the developing world is projected to account for virtually all energy demand growth in the coming decades. ..."
Reducing poverty is an intrinsically good thing. Regarding the concerns with carbon emissions, it also yields some collateral benefits, even if there is some rebound effect from one form of energy consumption to others.
Economists and demographers have long recognized that increasing prosperity is associated with a "demographic transition" to significantly lower fertility rates. So even as per-capita consumption grows, there also will be, over time, fewer 'capita' and thus a damping effect on gross demand.
Indeed, fertility rates in most industrialized nations now are below replacement level -- pointing toward declining populations in the absence of increased immigration. Slower or negative population growth tends too to have a parallel effect on GDP growth as a result of fewer workers to produce output. Less economic product implies relatively less carbon emissions, even with technology constant.
Moreover, greater prosperity makes investment in and acquisition of alternatives to fossil fuels -- whether via efficiency or alternative energy sources -- more affordable.
I agree with Carol that we need to do 'all of the above'.
In reply to Jon's question, I'm afraid the answer might be higher energy costs. Because we can't seem to change peoples behavior regarding electricity consumption, we have embarked on an experiment called real time pricing. When the demand for electricity is the highest, your local utility charges the most for it, thereby avoiding (hopefully) the cost of building a new power plant.
First, I think this is a very regressive policy, and will harm the lower income people the most, and second, in the complicated world we live in, who has the time to watch a consumption meter when they get home from work-and sit in the dark when demand gets high. Not sure that will get us where we need to go either.
The ~500 billion tons of unnaturally emitted carbon now in air & seas will require extraordinary measures worldwide -- measures requiring energy, but which must combat changed world chemistry. We have years, not decades, to do this.
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1) Certainly efficiency installed does not historically deliver promised value if it is not maintained. Installing a measure and performing proper M&V checks to verify maintained performance, is a waste of money. At the corporate level, the operational mentality may not include the proper maintenance measures in the financial model, following installation efficiency improvement countermeasures.
2) The negative effects of climate change on the economics of doing business as usual are not accounted for. That is assuming the EUI growth rate difference of both scenarios have a certain level of negative feedback on economic models. These are not well understood.....especially as we achieve higher levels of GHG concentrations. Uncertainty bands widen as we see exponential compounding effects. So there is a non-linear relationship that many bean counters cannot begin to comprehend.
3) The economics of externalized costs appear neglected in the computations. This accounting is difficult for many to fully model, as the extent of damage is deep and wide. These obviously have negative feedback effects on economies both locally and globally....and cannot be discounted or the computations are based on non-reality.
4) Article does not express the dynamics in terms of complex energy usage mathematical models and only considers first (or maybe second) level effects.....and in fact the equation likely involves levels of variables of many more degrees of complexity.
5) Decarbonization is trivialized, as only a reduction of our current feedstocks seem considered. The surface of the problem is scratched, and traditional RE sources of wind/solar/nuke solutions are mentioned. The analysis does not mention the embodied energy "costs" of each, compared to other less intensive technologies capable of delivering energy on a constant basis...with less embodied energy.
6) Migration away from combustion of fossils is not considered.....and it is the key element holding us back, in a stuck in the stone age mindset. This is an implementation/transition long term scenario.
7) Harnessing of Hydrogen as a new fuel feedstock....involving no carbon, is not even mentioned and is key to getting us OUT of the stone age mindset. I am speaking about reacting the hydrogen and not combusting it. This is our best long term sustainable bridge to until nuclear fusion, which will not poison our atmosphere further. The key to Hydrogen is that is enables RE integration and scalable storage for long term baseload energy delivery.
8) Energy efficiency measures implementation relying on government support for the "economics" of a project are a fallacious position, in which we cannot do anything well without incentives. This is a truly limited mentality, which keeps us stuck because we could not possibly know enough to do any bold improvements without their backing. I like the "build it and they will come" perspective.