Energy efficiency has played a pivotal role in American productivity improvements. In 2013, energy efficiency continued to move forward in the U.S. Driven by cost savings, energy efficiency is good for business and the economy. Improving efficiency increases production and can even lead to a higher quality of material life. Energy efficiency improves the nation's GDP for each national energy dollar. Perhaps most importantly, energy efficiency is a meaningful part of emissions reductions, which combat climate change and improve air quality.
Despite progress, there is still a lot of room for improvement in energy efficiency. As reported in Forbes, the U.S. is the global leader in wasting energy with the nation currently wasting more energy than it uses. A total of 57 percent of the energy flowing into our economy is wasted as heat, noise, and leaks, costing U.S. businesses and households an estimated $130 billion per year. In addition to massive cost savings, it is estimated that energy efficiency can also create more than one million jobs in the U.S.
Federal legislation pertaining to energy efficiency has been around for almost 27 years. Existing energy efficiency standards for everything from appliances to commercial products was first signed into law in 1987. Congress and the Department of Energy have subsequently added many new products and updated standards.
According to a 2012 study by the American Council for an Energy-Efficient Economy (ACEEE), appliance, equipment, and lighting standards will save businesses and consumers more than $1.1 trillion by 2035. By updating existing standards and setting new standards for additional products, consumers and businesses could save another $170 billion.
Climate benefits of energy efficiency
The benefits of energy efficiency extend well beyond cost savings. As indicated in an International Energy Agency (IEA) report, adopting measures to promote energy efficiency can buy the world an additional five years to secure a global climate deal. The IEA also suggests that energy efficiency may help us to keep temperature increases within 3 degrees Celsius (5.4 Fahrenheit) or perhaps even the 2 degrees Celsius upper threshold limit agreed upon by scientists.
The health of the American economy is being buoyed in part by energy efficiency. This is one of the findings in a new report by the Natural Resources Defense Council (NRDC) titled Energy and Environment Report, America’s (Amazingly) Good Energy News. The report demonstrates that energy efficiency measures are working in America. Although the U.S. economy grew by 25 percent between 1999 and 2012, total U.S. energy use actually declined during this period. The costs of energy services has also declined during the same period according to the NRDC report.
Energy efficiency was largely replaced by the term energy productivity in 2013, this is due to the growing appreciation that conserving energy is good for the economy. Energy productivity is defined as the amount of economic output possible at a given level of energy supply.
Energy productivity rose to prominence in 2013, due largely to the political advocacy of the Alliance to Save Energy and their Energy 2030 plan, which was put forth by the Alliance Commission on National Energy Efficiency Policy. The plan proposes doubling energy productivity by 2030.
The Obama administration and energy efficiency
The Obama administration embraced energy efficiency in earnest in 2013. President Obama showed his support for energy efficiency in his State of the Union address in which he called for cutting energy waste by half in our homes and buildings by 2030. As outlined in the President's 2014 budget, energy efficiency is central to the Race to the Top program.
Doubling energy productivity is a key strategy in the President's Climate Action Plan. The President's Plan also sets power plant carbon standards, builds a 21st-century transportation sector, reduces energy bills for families and businesses, invests in R&D, and modernizes the grid.
The federal government's Better Building Challenge has been expanded to include multifamily housing, and incorporate new accelerator programs for building data, performance contracting, and energy performance certification. Govenment agencies have also increased their energy savings performance contracts, which augments efficiency in federal buildings. Another catalyst is the Energy Efficiency and Loan Conservation Program, which provides $250 million for energy efficiency retrofitting projects in rural communities.
A couple of federal government agencies stand out for their promotion of energy efficiency. Both the Environmental Protection Agency (EPA) chief Gina McCarthy and Secretary of Energy Ernest Moniz are energy efficiency advocates.
The Department of Energy (DOE) is taking a leadership role by working on energy efficiency with new publications detailing methods for estimating energy efficiency savings and creating protocols for energy efficiency programs. Moniz has pledged to address appliance and equipment standards as well as establish rules pertaining to efficiency standards in electric motors. As reported by The Hill, the new rules will save up to $23 billion in energy costs over 30 years, as cited by DOE data.
According to Steven Nadel, Executive Director of ACEEE, electricity use and oil for transportation were down nationwide in 2013 as compared to 2011 and 2012 levels. He attributed the decline to utility-run energy efficiency programs, as well as equipment and vehicle standards.
States and cities
Energy efficiency is also moving forward on state and municipal levels. According to Nadel, highlights include utility programs in states like Mississippi and Louisiana, and legislation that was passed in Connecticut and Maine.
ACEEE's 2013 State Energy Efficiency Scorecardshows that the top 10 states for energy efficiency are Massachusetts, California, New York, Oregon, Connecticut, Rhode Island, Vermont, Washington, Maryland, and Illinois. With Mississippi, Maine, Kansas, Ohio, and West Virginia showing the most improvement.
As explained in the ACEEE Scorecard report, states are continuing to use energy efficiency as a key strategy to generate cost-savings, promote technological innovation, and stimulate growth. A total of twenty six states have adopted and adequately funded an energy efficiency resource standard (EERS), which sets long term energy savings targets and drives investments in utility sector energy efficiency programs.
Ranked number two by the ACEEE Scorecard, California is one of the best examples of state level energy efficiency efforts. However, action at the municipal level is proving to be another important factor driving energy efficiency. This is particularly true of Minneapolis, Chicago, Boston, Atlantic City, and Dallas.
Driven by cost concerns, the business community has been leading energy efficiency efforts. A growing number of corporations are getting onboard the efficiency train and putting pressure up and down their supply chains to produce economy wide impacts.
According to an article in Greentech Media (GTM), in 2013, energy efficiency became "cooler, sexier and cheaper than ever before -- driven largely by innovations in intelligent efficiency such as energy management software, virtual audits and better data crunching abilities."
GTM solicited the perspectives of efficiency executives in response to the question "What was the most important technology or market development for efficiency in 2013?" These executives indicated that a growing number of large corporations are getting serious about energy efficiency, they also talked about the importance of data, reporting and technology. Here is a summary of their responses:
Clay Nesler, VP of global energy and sustainability Johnson Controls, shared the results of their 2013 global survey of 3,000 facility and energy management executives. Their study showed that 73 percent of organizations surveyed had made internal or public goals to reduce energy consumption, of those, 50 percent implemented more efficiency measures in 2013.
Stephen Cowell, CEO, Conservation Services Group, said that smart devices provided multiple benefits by combining technologies to control equipment, engage customer behavior and link both demand response and efficiency.
Paul Baier, vice president of sustainability at Groom Energy indicated that the widespread acceptance of energy efficiency among senior management was driven by three trends: 1) Execution to achieve publicly stated greenhouse gas reduction goals. 2) Pressure from top customers like Wal-Mart. 3) Increased funding from utilities for behavior change (through demand response) and retrofits (through incentives).
Chuck McKinney, VP of marketing at Aircuity suggested that the availability of building energy consumption information helped to drive the efficiency market in 2013. Swapnil Shah, CEO at FirstFuel, said that in 2013, utilities demonstrated some innovative thinking in energy efficiency. He further indicated that energy efficiency oriented pilot programs were a defining feature of 2013.
Buildings and energy efficiency
Buildings account for 40 percent of all U.S. energy requirements, and a report by the Rhodium Group and United Technologies, entitled “Unlocking American Efficiency: The Economic and Commercial Power of Investing in Energy Efficient Buildings,” indicates that this translates to costs of almost half a trillion dollars per year. ($432 billion in 2011).
Building efficiency not only saves costs and benefits investors, it actually boosts the economy. Improving energy efficiency in buildings by 30 percent can create a $275 billion market for advanced technology, engineering and design services, and construction activity.
As reviewed in the 2013 State Energy Scorecard, a total of seven states adopted building energy codes in 2013, which require large commercial buildings to benchmark and report on their energy use.
Building efficiency is good business that offers outstanding ROI. It not only increases the productivity of existing assets, it also protects against volatile energy costs. According to the Rhodium Group report, the return on investment is exceptional. As explained by John Mandyck, Chief Sustainability Officer for United Technologies Climate, Controls & Security in an Energy Manager Today article,
"[I]nvesting...30% improvement in building energy efficiency would have an internal rate of return (IRR) of 28.6% over a 10-year period. An IRR of 28.6% is four times better than average corporate bond yields or average equity performance, and more than double the returns even high-performing venture capital firms."
As reviewed in the Rhodium Group report, with a five percent penetration rate, U.S. government and utility sponsored programs are just starting to impact on the efficiency finance opportunity.
The financing barrier
Despite the fact that energy efficiency is a valuable investment for almost all companies, a lack of capital and difficulties associted with financing continue to represent challenging obstacles. In addition to addressing the issue of up-front costs, financing can make energy efficiency cash flow positive by spreading out payments over time so that the cost is actually less than the savings cash flow. For qualifying companies there are also a number of utility rebates, tax refunds, credits, and other sources of free money that will improve a project’s financial return.
However, as pointed out by Clay Nesler of Johnson Controls, funding is a perennial barrier to investment in energy efficiency. The specific barriers cited by Nesler include lack of internal capital, competition from other investments and lack of competitive third-party financing options.
Swapnil Shah, of FirstFuel, concurs, reiterating the point that fostering private investment is the most serious hurdle for commercial building efficiency. He sees the absence of standard assessment metrics in energy efficiency as the major problem.
Despite these financing problems, the increasing focus on energy efficiency/productivity in 2013 represents important progress in the evolution of the green economy.
Next week: Energy Efficiency Outlook for 2014
Richard Matthews is a consultant, eco-entrepreneur, green investor and author of numerous articles on sustainable positioning, eco-economics and enviro-politics. He is the owner of The Green Market Oracle, a leading sustainable business site and one of the Web’s most comprehensive resources on the business of the environment. Find The Green Market on Facebook and follow The Green Market’s twitter feed.
Image credit: American Council for an Energy Efficient Economy