Putting Energy Efficiency Benefits in Perspective

At Summit, Political Leaders Discuss Role of Efficiency in Clean Energy Economy

Published by the CoStar Group August 21, 2009
Written By Andrew C. Burr

The numbers behind a spate of new energy efficiency studies are mind-boggling: $520 billion invested in efficiency over the next decade would save $1.2 trillion in U.S. energy costs, McKinsey & Co. reported, while retrofitting 50 million U.S. buildings would create 625,000 jobs and shave up to $1,200 per year off the utility bills of American families, according to John Podesta’s Center for American Progress and the Energy Future Coalition.

Another study by the American Council for an Energy-Efficient Economy found that the House version of the climate bill could save $2.1 billion in national energy costs by relying more on efficiency measures, offsetting higher energy rates from carbon pricing.

But what exactly do those numbers mean? And if the economics are so compelling, why hasn’t the market already embraced energy efficiency?

Political leaders sought to answer those questions last week at the 2009 National Clean Energy Summit, an environmental conference in Las Vegas hosted by Senate Majority Leader Harry Reid of Nevada, the Center for American Progress (CAP) Action Fund and the University of Nevada, Las Vegas.

Delivering the keynote address, former President Bill Clinton said the key to unlocking energy efficiency benefits, such as job creation and consumer savings, is bringing it to scale.

“We are still just playing around with this. We have to figure out how to do this on a national scale and show how it can be done on an international scale,” he said.

An energy retrofit at the Empire State Building that Clinton’s foundation helped plan is projected to cut the tower’s energy usage by almost 40 percent and create a number of new jobs. But those benefits are “peanuts” in the larger scheme, the former president said.

“We just lost 7 million jobs. We need 3 million more jobs today and we need to find a way to prove to the American people we can get the 80 percent reduction [in greenhouse gas emissions] by 2050 while growing the economy, not shrinking it.”

Energy efficiency can do both those things, said Van Jones, special advisor with the White House Council on Environmental Quality.

“There is so much work that needs to be done in this country to retrofit America -- to cut these energy bills. And there are so many people who need work,” he said during a roundtable before Clinton’s speech. “This is our opportunity as a country to take the people that most need work and connect them to the work that most needs to be done.”

He called efficiency “the most fiscally conservative thing we can do with federal dollars” to reduce energy consumption.

Americans spend $200 billion each year to light, heat and cool their homes, the CAP study said. That cost doubles when accounting for the 36 billion square feet of commercial space that small U.S. businesses occupy.

But the study reported that investing $500 billion over the next decade to retrofit 50 million homes and small commercial buildings would save consumers $32 billion to $64 billion annually in energy costs, including $300 to $1,200 in yearly savings for each household.

According to the McKinsey study, the energy consumption and greenhouse gas emissions of U.S. commercial buildings could actually be less in 2020 than they are now with a $100 billion investment in efficiency measures over the next decade. That investment would also yield more than $200 billion in energy savings.

But if energy efficiency can really cut energy and create jobs while saving money, critics ask, why aren’t we already doing it?

Part of the problem is societal, former Vice President Al Gore said at the roundtable, a symptom of years of abundant and cheap energy. “We have gotten to the point where this wastefulness and inefficiency is just ingrained. And it’s become a way of life.”

But the largest deterrent is the lack of financing to support efficiency projects.

Some funding solutions, such as bank financing backed by energy savings guarantees from the companies performing the work (known as energy services companies, or ESCOs), have been shelved. “After the banking collapse, virtually all of that went away,” Clinton said.

According to Tony Liou, principal engineer and managing director of the energy consulting firm Partner Energy in California, “Real estate lending, in itself, has soured.”

He said creative efficiency financing options, some through bonds and private equity, are beginning to emerge, but traditional lending is still at a standstill. “From the bank perspective, it’s difficult to finance these types of projects,” Liou said, adding that the capital reserves that property owners often use to finance retrofits have also dried up.

According to Clinton, efficiency can only be brought to scale with the support of banks.

The McKinsey investment -- $520 billion over 10 years -- sounds like a devastating amount of money, Clinton said, but “about two months ago, the banks of the United States had more than $900 billion in cash today uncommitted to loans -- free for loaning.”

“You gotta get the banks involved in this if want to quit piddling around,” he said.

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