The Economic Case for Energy Efficiency

Transcription

1 The Economic Case for Energy Efficiency It s not news that the United States uses a great deal of energy (25% of the world s oil energy although we re only 5% of the world s population) and that we import nearly 50% of the petroleum products we use. While focusing on finding new sources of traditional energy such as oil and coal and developing alternative energy such as wind and solar, we overlook the energy resource that can do the most for the least: energy efficiency. Using technology available today, energy efficiency can increase our energy supply cheaply, cleanly, and easily while creating jobs, reducing our trade deficit, reducing greenhouse gases, and improving air quality. This paper examines the economic case for energy efficiency. Energy conservation Turning off the lights Energy efficiency Using technology to get the same or more light using less energy Contents Efficiency: the most cost-effective energy resource... 2 Energy efficiency is as American as apple pie... 4 Where we are today... 5 California... 7 Pacific Northwest... 8 Where we re headed... 9 Unintended consequences... 9 Jobs HVAC leads the way Conclusion Sources Western Environmental Services Corp Portland, OR

2 Efficiency: the most cost-effective energy resource Increasing the nation s energy efficiency is comparable to discovering a new U.S. energy reserve. Increasing energy efficiency is relatively easy and cheap far easier and cheaper than tapping new supplies of any kind yet the U.S. doesn t exploit efficiency to the extent it could. Here are some of the economic benefits of exploiting efficiency as an energy resource for generating electricity. Low development costs A kwh not used is a kwh that doesn t have to be generated. Generate enough negawatts through energy efficiency, and utilities don t have to invest in new power plants. As Figure 1 shows, saving a kilowatt hour through efficiency programs costs utilities up to 80% less than developing other new sources of electricity, whether from conventional fossil fuels or renewable energy sources. Source: American Council for an Energy-Efficient Economy Figure 1 Cost of developing various sources of electricity Investing in conventional energy sources has typically cost between $0.07 and $0.15 per kwh three to six times the cost of energy efficiency investments. And while energy supply-side resource costs are highly volatile, energy efficiency is a financially stable, long-term investment. In fact, the cost of energy efficiency has remained constant over time, even with increasingly ambitious energy savings levels. 2

3 Quick results Because energy efficiency goals can often be met using existing technology, efficiency programs can deliver results relatively quickly and in much less time than it takes to build a new power plant. Cost effectiveness McKinsey and Company reported that in the U.S., inefficient buildings and appliances waste $130-billion worth of energy (55% of it electricity) each year, which could cost-effectively be saved using existing technology. Their report Unlocking Energy Efficiency in the U.S. Economy concluded that with an initial investment in energy efficiency of $520 billion, a comprehensive efficiency strategy could reduce the nation s nontransportation end-use energy costs by more than $41.2 trillion by 2020 a cost-savings 79 times the investment. In general, energy codes are very cost-effective, with any extra first cost for compliance usually paid back through energy savings in seven or fewer years. The U.S. Department of Energy estimates that if all states adopted the updates to the model commercial building energy code approved by ASHRAE in 1999, buildings in the U.S. would save about 800 trillion Btu of energy over 10 years. Even more energy savings would be realized if all states adopted the 2007 version. Increased worker productivity Energy efficiency affects the bottom line beyond reducing the energy bill. Health and productivity benefits in particular can often account for significant savings that are greater than the entire energy bill. The Rocky Mountain Institute concluded that labor productivity typically rises by 6-16% in efficient buildings because of things such as natural lighting and improved indoor air quality. Office workers in industrialized countries cost approximately 100 times more than office energy, so a mere 1% increase in labor productivity has the same effect on the bottom line as eliminating the energy bill, while the actual productivity gain is six to 16 times larger than that. 3

4 Electric grid stability The National Academy of Sciences report Real Prospects for Energy Efficiency in the United States concluded that fully deploying currently-available cost-effective, energyefficient technologies in buildings could all by itself eliminate the need for additional U.S. electricity generation capacity. This means that no new power plants would be needed except to handle regional supply imbalances, replace obsolete generation assets, and substitute more environmentally benign generation sources. Efficiency programs also reduce the need to install, upgrade, and replace transmission and distribution equipment. Energy efficiency is as American as apple pie Energy efficiency is not a late 20 th -century phenomenon. Efficient technology that uses less energy to get the same or better output has spurred American economic growth for over 150 years. As Figure 1 shows, a recurring theme of our economic history is ever-increasing energy efficiency. Source: The National Academy of Engineering Figure 2 U.S. energy use per dollar of GDP,

5 Energy intensity BTU consumed per dollar of output While America was building its infrastructure and developing its industrial and service sectors, the economy s energy intensity (BTU consumed per dollar of output) fell dramatically. If we were still using energy at our 1919 level, it would now take four times as much petroleum, coal, and natural gas to produce our current GDP. As Figure 2 shows, U.S. energy intensity dropped by half from 1919 to 1973 and dropped by half again from 1973 to 2006, at rates of 1.6% and 2.1% per year, respectively. If energy intensity continues to drop at an annual rate of 2.1%, total energy use in the economy will rise by only 8% by 2030, putting less pressure on our trade balance and the environment. But if we reduce energy intensity by 2.5% per year, our energy use will not grow at all, despite a growing economy. This would have enormous benefits for the environment (including reducing greenhouse gas emissions), energy security, and our balance of payments. Where we are today Worldwide we use nearly 18.5 trillion kwh of electricity a year. Figure 3 compares the total annual consumption of electricity of six industrialized countries, and Figure 4 compares their annual per capita electrical consumption. 4 trillion kwh 3 trillion kwh trillion kwh 1 trillion kwh UK France Germany Japan China US Source: The World Bank Figure 3 Total annual electricity consumption for six industrialized nations 5

6 15 kwh 12, kwh 5 kwh 2,631 5,692 6,779 7,488 7,819 China UK Germany France Japan US Source: The World Bank Figure 4 Per capita annual electricity consumption for six industrialized nations The world consumes over 32 billion barrels of oil each year. Figure 5 compares total yearly oil consumption of six industrialized countries, with Figure 6 showing per capital yearly consumption. 8 billion barrels 7 billion barrels billion barrels 5 billion barrels 4 billion barrels 3 billion barrels billion barrels billion barrels UK France Germany Japan China US Source: U.S. Energy Information Administration Figure 5 Total annual oil consumption for six industrialized nations 6

7 25 barrels barrels 15 barrels 10 barrels barrels 2.1 China UK Germany France Japan US Source: U.S. Energy Information Administration Figure 6 Per capita annual oil consumption for six industrialized nations As the Energy Information Administration points out, although the US is the world s third largest producer of crude oil, we import 49% of the crude oil and refined petroleum products we use. Given that we import so much energy, is it possible for the US to be energy self-sufficient without drastically reducing our standard of living? Compared to 2005 when we imported 60.3% of the petroleum products we used, that s more than an 11% decrease and the lowest percentage since 1973 (when the government began keeping records). The US economy has tripled in size since 1970, but energy use has not tripled. In fact, only one quarter of the energy needed for this economic growth came from new energy supplies. The remaining three quarters came from advances in efficiency. California California, with the world s eighth largest economy, is a leader in energy efficiency. Since 1960, California has outpaced the rest of the nation in adopting energy efficiency. Policies, investments, and business leadership have kept per capita electricity consumption in California steady since 1980, while it increased dramatically nationwide (see Figure 7). Energy codes adopted in California since 1975 have resulted in energy savings of more than $30 billion that s more than $2,000 per household. And although a new house today is about 50% larger than in 1975, the energy needed to cool a new home has declined by two-thirds, to 800 kwh per year. 7

8 Source: Energy Information Administration Figure 7 Total per capita electricity use Pacific Northwest The Pacific Northwest is also an efficiency leader, decreasing its expected energy use by 20% over 30 years (1979 to 2009) through efficiency. The Northwest Power and Conservation Council develops and maintains a regional power plan that guides the Bonneville Power Administration. The Sixth Northwest Power Plan, released in 2010, concluded that energy efficiency can meet most of the new demand for electricity in this region over the next 20 years. Investments in efficiency will reduce the risk of future electricity shortages, reduce emissions from power plants to help meet regional carbon-reduction goals, and cost consumers less than building new power plants. According to the Plan, the Northwest (Oregon, Washington, Idaho, and part of Montana) will grow from about 13 million people in 2010 to 16.7 million by 2030, with the power load increasing from about 21,000 average megawatts to about 28,000 average megawatts. The Plan concluded that energy efficiency could meet 85% of the new load over the next 20 years an energy resource equivalent in size to the entire Columbia River hydroelectric system. This efficiency, combined with new renewable energy, could postpone investments in new fossil-fuel power plants until future environmental legislation is clarified and alternative low-carbon energy sources have matured in technology and cost. 8

9 Where we re headed Can we match our past energy-efficiency successes given our growing population and increasing GDP? The good news is that we have the technology today to ensure a bright energy future. Recent studies from the National Academy of Sciences, the National Academy of Engineering, McKinsey & Company, the Interlaboratory Working Group, and the National Resource Council concluded that the most cost-effective option for increasing the energy supply is using existing energy-efficient technologies. Potential energy savings from currentlyavailable technologies in buildings, industry, and transportation could more than offset projected increases in U.S. energy consumption through Improving energy efficiency means the United States would consume about the same amount of total energy in 2030 that it consumes today, despite increasing population and GDP. If we become 30% more energy-efficient, our energy use would fall enough that we wouldn t have to import energy and could actually export energy, thereby dramatically decreasing the nation s trade deficit and dependence on foreign oil. If we don t improve energy efficiency, the US will have to build the equivalent of 300 coal plants by 2030 to meet the demand. Each year the five million commercial buildings in the United States consume more than 6,500 trillion Btu of energy, with electricity accounting for 55% of the total and natural gas 32%. The American Physical Society s report Energy Future: Think Efficiency concluded that energy demand by the building sector could be reduced from a projected 30% increase to no increase between now and 2030 if current and emerging energy-efficient equipment and practices are implemented in new buildings and when replacing systems such as heating, cooling, and lighting in existing buildings. Unintended consequences The long lifetimes of buildings and some capital equipment are significant barriers to implementing energy-efficient technologies. Because buildings can last for decades and even centuries, they can lock in patterns of energy use for years. Thus, it is important to take advantage of opportunities (during the design and construction of new buildings or major subsystems, for example) to include energy-efficient technologies. Energy efficiency and renewable energy are the foundation of a sustainable energy policy. The current emphasis on new energy supplies (whether from new sources of fossil fuel or renewable energy) may be siphoning off investments and 9

10 innovations in efficiency. We need both: efficiency for immediate and future energy-use reduction while we look for new energy sources and make renewable energy cost-competitive. Jobs Leaky and inefficient buildings waste money and energy, and the solution requires domestic, labor-intensive work that can be implemented today at low cost with existing technology. Energy efficiency is, and will continue to be, the lowhanging fruit by which the United States can save money and create sustained jobs. We can do this while improving and upgrading our infrastructure and quality of life, with healthier, more comfortable, and more economical buildings. Since 2003, the Brookings Institution found, demand for energy efficient HVAC products, energy-saving building materials, and sustainable architecture and construction created over 200,000 new jobs. These new jobs pay well, with a median wage 13% higher than the overall U.S. median wage. Retrofitting just 40% of the nation s residential and commercial building stock to be more energy efficient would create 625,000 sustained fulltime jobs over a decade (and save ratepayers as much as $64 billion per year). As Figure 8 shows, spending on energy efficiency creates significantly more jobs than spending on coal, oil, or gas. Source: Center for American Progress Figure 8 Jobs created per $1 million spent 10

11 Products used for energy-efficient buildings and efficiency retrofits have a larger share of U.S. content than the average of all U.S.-manufactured products. Figure 9 shows the percentages for several products. Source: Center for American Progress Table 9 Percentage of content manufactured in U.S. Efficiency retrofits are also a boon for small businesses. Table 1 shows the percentage of small businesses among energy retrofit firms. Table 1 Percentage of small business among energy retrofit firms Business Firms employing <20 people HVAC installation 90% Lighting installation 90% Insulation installation 86% Window installation 82% Source: Center for American Progress HVAC leads the way It used to be that efficiency came with a cost penalty, but not anymore. According to the California Council on Science and Technology, today a building can be built to be 40-50% more efficient for the same up-front cost as a traditional building. Estimates for the cost of deep efficiency retrofits (~70-80% energy-use reductions) to existing buildings range from $40,000 to $100,000 per building. 11

12 Pike Research found that HVAC is the fastest growing sector of the green building market and predicted that it will grow from $3.1 billion in 2011 to $6.4 billion by Also, the market for energy-efficient buildings will increase more than 50% from 2011 to 2017, topping out at $103.5 billion. McGraw-Hill Construction s 2011 report "Business Case for Energy Efficient Building Retrofit and Renovation" found that within the next two years 78% of business owners intend to upgrade or retrofit their buildings to maximize energy efficiency. While government funding and outside financing can be major incentives for businesses to make efficiency retrofits, the report noted that 85% of current retrofitting projects are paid for by companies themselves. This represents a major commitment by businesses to decrease utility costs, increase profit margins, and improve employee productivity and satisfaction, the survey found. With more businesses, governments, and homeowners seeking energy efficiency improvements, construction companies will see substantially increased activity in the renovation industry, reaching $53 billion by 2014, McGraw-Hill estimates. Meanwhile, new sustainable construction projects may represent as much as 48% of the commercial building market by 2014, way up from 2% in Conclusion Efficiency is the most practical energy resource it is cheaper, easier, faster, and has fewer environmental impacts than other energy resources. Energy efficiency also makes good business sense, because it: has the shortest pay-back time of all energy resources saves directly and immediately on energy bills maintains cost-consistency increases worker productivity creates well-paying American jobs in every community has a positive impact on the trade deficit decreases dependence on foreign energy sources lowers utilities capital costs by reducing the need for new power plants 12

13 Sources American Council for an Energy Efficient Economy ( American Physical Society ( Bonneville Power Administration ( Bureau of Labor Statistics ( Brookings Institution ( California Council on Science and Technology ( Center for American Progress ( Coming Global Oil Crisis ( Energy Collective ( Green-Buildings.com ( Interlaboratory Working Group ( International Energy Agency ( McGraw-Hill Construction ( McKinsey & Company ( National Academy of Engineering ( National Academy of Sciences ( National Resource Council ( NationMaster ( Northwest Energy Efficiency Alliance ( Northwest Power and Conservation Council ( Pike Research ( Political Economy Research Institute, University of Massachusetts, Amherst ( Rocky Mountain Institute ( U.S. Department of Energy ( U.S. Energy Information Administration ( World Bank ( 13