By Steven Chu, U.S. Secretary of Energy
For the next few decades, energy efficiency is one of the lowest cost options for reducing US carbon emissions.
Many studies have concluded that energy efficiency can save both energy and money. For example, a recent McKinsey report calculated the potential savings assuming a 7% discount rate, no price on carbon and using only “net present value positive” investments. It found the potential to reduce consumer demand by about 23% by 2020 and reduce GHG emissions by 1.1 gigatons each year--at a net savings of US$ 680 billion.
Likewise, the National Academies found in 2009 that accelerated deployment of cost-effective technologies in buildings could reduce energy use by 25-30% in 2030. The report stated: “Many building efficiency technologies represent attractive investment opportunities with a payback period of two to three years.”
Some economists, however, don’t believe these analyses; they say there aren’t 20-dollar bills lying around waiting to be picked up. If the savings were real, they argue, why didn’t the free market vacuum them up? The skeptics are asking a fair question: why do potential energy efficiency savings often go unrealized?
I asked our team at the Department of Energy to review the literature on savings from home energy retrofits. We are pursuing energy efficiency in many areas--from toughening and expanding appliance standards to investing in smart grid--but improving the efficiency of buildings, which account for 40% of US energy use, is truly low hanging fruit.
In this review, we looked only at studies that compared energy bills before and after improvements and excluded studies that relied on estimates of future savings. We found that retrofit programs that were the most successful in achieving savings targeted the least efficient houses and concentrated on the most fundamental work: air-tight ducts, windows and doors, insulation and caulking. When efficiency improvements were both properly chosen and properly executed, the projected savings of energy and money were indeed achieved. In science, we would call the successful programs an “existence proof” that efficiency investments save money. Too often, however, the savings went unrealized, due to a number of reasons, including poor efficiency investment decisions and shoddy workmanship.
There are other reasons why energy savings aren’t fully captured. Market failures include inertia, inconvenience, ignorance, lack of financing and “principal agent” problems (e.g., landlords don’t install energy efficient refrigerators because tenants pay the energy bills). To persuade the skeptics and spark the investments in efficiency we need, the Department of Energy is now focused on overcoming these market failures.
First, the Department is working to develop a strong home retrofit industry. We are creating a state-of-the-art tool that home inspectors can use on a handheld device to assess energy savings potential and identify the most effective investments to drive down energy costs. We’re also investing in training programs to upgrade the skills of the current workforce and attract the next generation. The Department is also focused on measuring results--to both provide quality assurance to homeowners and promote improvement. For example, we’re pursuing new technologies such as infrared viewers that will show if insulation and caulking were done properly. Post-work inspections are a necessary antidote and deterrent to poor workmanship.
