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 ................................................................................. 10
HVAC leads the way ....................................................... 11
Conclusion ...................................................................... 12
Sources ............................................................................ 13
Western Environmental Services Corp
Portland, OR
www.wescorhvac.com
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.
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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.
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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 20th-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, 1850–2006
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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.
3.962
4 trillion kWh
3.503
3 trillion kWh
2 trillion kWh
.997
1 trillion kWh
.352
UK
.483
.555
France GermanyJapan China
Source: The World Bank
US
Figure 3 Total annual electricity consumption for six industrialized nations
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15 kWh
12,904
10 kWh
7,819
5,692
5 kWh
6,779
7,488
2,631
China
UK Germany France Japan
Source: The World Bank
US
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
7.117
7 billion barrels
6 billion barrels
5 billion barrels
4 billion barrels
2.901
3 billion barrels
2 billion barrels
1.748
1 billion barrels
.630
.710
.923
UK France Germany Japan China
US
Source: U.S. Energy Information Administration
Figure 5 Total annual oil consumption for six industrialized nations
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25 barrels
22.6
20 barrels
15 barrels
13.7
10.1
10 barrels
11.4
11.6
5 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.
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Source: Energy Information Administration
Figure 7 Total per capita electricity use 1960-2009
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.
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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 2030. 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
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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
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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.
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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 2017. 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 2005.
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:
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

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
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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
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Sources
American Council for an Energy Efficient Economy ( www.aceee.org)
American Physical Society ( www.aps.org)
Bonneville Power Administration (www.bpa.gov )
Bureau of Labor Statistics ( www.bls.gov )
Brookings Institution ( www.brookings.edu)
California Council on Science and Technology (www.ccst.us)
Center for American Progress (www.americanprogress.org)
Coming Global Oil Crisis (www.oilcrisis.com)
Energy Collective (www.theenergycollective.com)
Green-Buildings.com (www.green-buildings.com)
Interlaboratory Working Group (www.ORNL.gov)
International Energy Agency (www.eia.gov)
McGraw-Hill Construction (www.construction.com)
McKinsey & Company ( www.mckinsey.com)
National Academy of Engineering (www.nae.edu)
National Academy of Sciences (www.nationalacademies.org)
National Resource Council ( www.nationalacademies.org/nrc/)
NationMaster (www.nationmaster.com)
Northwest Energy Efficiency Alliance (www.neea.org)
Northwest Power and Conservation Council (www.nwcouncil.org)
Pike Research (www.pikeresearch.com)
Political Economy Research Institute, University of Massachusetts, Amherst
(www.peri.umass.edu)
Rocky Mountain Institute (www.rim.org)
U.S. Department of Energy ( www.energy.gov )
U.S. Energy Information Administration (www.eia.org)
World Bank (www.worldbank.org)
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