The best way to meet increases in energy demand might not be to supply more. But while efficiency improves security, hurdles abound
19 February 2013
This article appears in the forthcoming issue of IEA Energy: The Journal of the International Energy Agency, which will be published early next month.
Energy is a foundation of modern life and one of the key differentiators between healthy, wealthy societies and sick, poor ones. As populations grow and countries develop, the best option in meeting their rising energy demand lies in energy efficiency – getting the same for less energy or getting more from the same.
For the one in five people in the world who currently lack electricity in their homes and businesses, available and affordable energy resources are critical to their community’s efforts to reduce poverty, improve public health and increase educational opportunities.
For those with energy access, supply security – ensuring that energy is consistently available and affordable – is an ongoing challenge.
The European Fuel Poverty and Energy Efficiency Project estimates that up to 125 million Europeans are fuel-poor, having to make the “eat or heat” decision during winter months. In Belgium, where nuclear power provides more than half of the electricity supplied, the country’s power system came under significant strain late last year when safety concerns led to a months-long reactor shutdown. The American Society of Civil Engineers projects a USD 500 billion investment deficit for the ageing power grid in the United States, which increases energy reliability concerns.
But “negawatts” could reduce the pressure on supply infrastructure while maintaining adequate energy services for an improving quality of life. The negawatt is a theoretical unit of power saved – its name stems from a newspaper typo that Amory Lovins, the founder of the Rocky Mountain Institute and a dedicated energy efficiency supporter, decided to adopt for a 1989 keynote address at the Green Energy Conference in Montreal. There, he painted a picture of a more energy-efficient world, saying, “Imagine being able to save half the electricity for free and still get the same or better services!”
While the primary goal of energy efficiency initiatives is to reduce total energy consumption, negawatts can have benefits far beyond the kilowatt-hour. According to the United Nations Sustainable Energy for All initiative, “Energy efficiency – getting more from our existing resources – increases global resource productivity, supports economic growth and reduces costs for all citizens.”
Individual, national and global benefits
According to the International Energy Agency analysts Lisa Ryan and Nina Campbell, the welfare benefits resulting from energy efficiency improvements can be broken down by level: individual, sectoral, national and global. For individuals and households, improving the efficiency of heating and cooling equipment can, for example, improve air quality within homes and offices. More effective temperature control and cleaner air can have significant positive impacts on public health.
Further, a more efficient customer can allow a utility to serve more people, increasing access to affordable energy supplies. On the supply side, efficiency can enable a shift from regional generation to greater amounts of local or even individual production. This can lead to reductions in transmission losses, while providing a local revenue stream.
More broadly, energy efficiency can make industries more competitive, resulting in job creation, more flexible government budgets and improved energy security. In China, efficiency has been a prominent objective for more than 30 years. The current five-year plan targets a 16% cut in China’s energy intensity (the amount of energy required to produce one unit of gross domestic product (GDP) by its conclusion in 2015.
On a global scale, increased energy efficiency can improve energy affordability and sustainable economic growth, in the process adding to global energy security. For example, according to the World Energy Outlook 2012, North America could become a net oil exporter by 2030. Under that scenario, the United States – which currently imports about 20% of its total energy requirements – will become essentially self-sufficient. This radical shift on historic trends is largely the result of rising oil, shale gas and bioenergy production. But it is also based on improved vehicle fuel efficiency standards that have been adopted in the United States.
Working around the rebound effect
For the optimist, energy efficiency is massively beneficial to all of society. According to an often-cited 2009 McKinsey & Co. analysis on energy efficiency in the United States, existing technologies and opportunities could significantly decrease the economy’s energy intensity. And it could do so with a price of less than half that of a new natural gas power plant on a cost-per-unit energy basis. In India, ICF International reports a market potential of almost USD 10 billion for energy efficiency.
The pessimist can quickly respond that an inevitable rebound will kill estimated energy savings from efficiency projects. Further, most energy markets are set up to sell more energy, not to support end-user efficiency.
The “rebound effect” describes how, when an existing service becomes increasingly energy-efficient, society will often demand additional services that use up the savings. For instance, a 2012 study by the Massachusetts Institute of Technology economist Christopher Knittel found that the efficiency of American automotive engines rose 60% over the past three decades. But, three-quarters of the gain was eaten up by bigger, more powerful vehicle designs.
And utility companies’ profits currently are linked to energy sales instead of specific energy services. In the absence of government policy, there is little reason for companies to increase spending for energy efficiency projects.
Some companies do make money from selling negawatts. Over the past 12 years, Chevron Energy Solutions has found ways to eliminate billions of dollars of energy waste in the public sector as an energy services company (ESCO). In Brazil, more than 70 ESCOs are working to eliminate energy waste, primarily through improved lighting technologies.
But these organisations are the exception rather than the rule in the energy business.
There are examples of governments that have recognised and addressed this mismatch in incentives. The 1970s oil crises spurred Sweden to move towards alternative energy resources, including efficiency. Today, the country has set efficiency standards for everything from light bulbs to electric motors and has decreased its dependence on oil by more than 65%.
In Japan, energy efficiency is part of the national identity. In 2008, just before a meeting of the Group of Eight leading industrialised countries, then-Prime Minister Yasuo Fukuda proudly stated, “superior technology and a national spirit of avoiding waste give Japan the world’s most energy efficient structure”. In the wake of the 2011 Fukushima Daiichi nuclear accident, efficiency mandates helped Japan to work through a difficult rebalancing of its national energy portfolio.
In the United States, California has realised impressive efficiency gains primarily through building codes implemented in the 1960s and 1970s. As a result of these and other policies, the state has recorded near-constant per-capita electricity use since 1973. This fact, known as the “Rosenfeld Effect” after the physicist Arthur H. Rosenfeld, demonstrates the potential for a large region to use efficiency to offset significant amounts of electricity demand growth.
In an attempt to extend the Rosenfeld Effect to other states, the 2009 American Recovery and Reinvestment Act focused heavily on efficiency – over a third of the USD 97 billion allocated to green energy was set aside for efficiency projects.
Moving forward, international efforts allow researchers and industry around the globe to share lessons learned. For instance, in a binational effort to decrease the amount of energy required to fuel India’s growth, the United States-India Joint Clean Energy R&D Centre’s Energy Efficiency of Buildings consortium develops ways to use information technology and building-control systems in commercial and high-rise residential buildings.
Such efforts can deliver energy savings by 2035 equivalent to nearly a fifth of 2010 global demand, according to World Energy Outlook 2012 analysis. As IEA Executive Director Maria van der Hoeven explained in announcing those findings, “energy efficiency is just as important as unconstrained energy supply, and increased action on efficiency can serve as a unifying energy policy that brings multiple benefits”.