Less is More, More, More: The Cascading, Collective, Compounding, Sheer Utter Coolness of Efficiency
I stared at the slide on the screen in wonder. It wasn’t the first time I had seen the graph, but it was the first time that I really understood it. There in black and gray with squiggly trend lines was the familiar path to a better, low-carbon future: renewables and efficiency together eroding demand for fossil fuels. Sitting in the back of a dimly lit, early morning hotel ballroom filled with utilities executives, I saw that it also told another story, one of a present that turned out much better than it might have otherwise.
If energy demand had continued on the business-as-usual trajectory of 1975 (the green dotted line on top of the gray wedge), the US would have needed to produce and import more than twice as much energy as it does today—mostly fossil fuels. According to the then-conventional wisdom, each percent growth of GDP required x amount of energy. Economic prosperity was in lockstep with energy consumption.
Lucky for us, it didn’t turn out that way. Instead, the economy more than tripled while energy use flattened. Efficiency played a key role in both—driving down energy demand while freeing up capital to help grow the economy. Making the transition away from fossil fuels turned out to be a powerful economic driver. In fact, efficiency is essential for growth.
Solar and wind energy have developed steadily over the last forty years and are now poised for a global, exponential expansion propelled by a nearly unstoppable Moore’s-ish Law (increased production driving down prices, which expands markets and sparks innovation for the next round). Yet it turns out the workhorse that has delivered 31 times the impact of renewables for the last several decades is, in analyst-speak, “reduced energy intensity.” About two-thirds of that is due to efficiency, with the rest the result of compositional change, e.g. cuts in steel production mean less energy needed to make steel. As renewables ramp up, the ratio narrows (about 30x for 2016), but the combined impact squeezing out fossil fuels strengthens.
Efficiency is not one thing, but a staggeringly varied collection of technologies and services. There are so many ways to save energy that “the low hanging fruit keeps growing back faster than you can pick it,” notes Amory Lovins, chief scientist and co-founder of Rocky Mountain Institute. In 1976, Lovins’ groundbreaking article published in Foreign Affairs, “Energy Strategy: The Road Not Taken,” outlined an alternative “soft path” policy based on efficiency and renewables rather than drilling, digging and splitting atoms. It both predicted and provided a template for what actually happened in the decades that followed.
Buying Time
Efficiency also bought critical time, slowing down the rate of climate change, which was already a clear threat in the mid-1970s when Lovins wrote:
“…The commitment to a long-term coal economy many times the scale of today’s makes the doubling of atmospheric carbon dioxide concentration early in the next century virtually unavoidable, with the prospect then or soon thereafter of substantial and perhaps irreversible changes in global climate. Only the exact date of such change is in question….”
In 1975, atmospheric CO2 averaged about 330 ppm, but instead of doubling, it rose just 9% to to 370 ppm by 2000. That is still well above the 350 ppm considered safe, but also well below today’s level of 405 ppm. That this happened as China and India developed as industrial powers and as the global population grew from 4 billion to 6 billion people further underscores the importance of efficiency. If not for efficiency, we would already be grappling with the worst-case scenario of climate change.
Yet even small changes in atmospheric carbon levels are enough to trigger significant, interrelated, escalating problems: melting glaciers, rising seas, killer humidity and ever more extreme, record-shattering weather. Just a few degrees increase in soil temperatures during the summer can stunt harvests, which can drive up food prices and lead to famines. In the Arctic, a few degrees can be enough to melt permafrost, releasing vast amounts of the potent greenhouse gas methane, igniting a pernicious warming feedback loop.
The need to rein in fossil fuel emissions has never been more urgent. The population has now surged past 7.6 billion, while global temperatures continue to smash records and carbon-soaked seas have become increasingly acidic. According to the latest research, the most dire predictions for climate change are also the most likely. There is still hope—or as Lovins puts it, “applied hope”— that global temperatures can be kept in check to meet the Paris Agreement’s goal of 1.5°C, but it will require an all-hands-on-deck effort with efficiency playing a central role.
When It’s Not Worth Taking Out of the Ground…
Long before the phrase “keep it in the ground” became the rallying cry of environmental activists, efficiency was on the case. Nothing keeps oil and coal in the ground more effectively than diminished demand.
Divestment—the selling off fossil fuel stocks—has become a favorite tactic of universities, foundations and investment funds all over the the world. So far the collective tally tops $5 trillion, with Norway’s behemoth sovereign wealth fund, itself the product of North Sea oil profits, set to add another trillion dollars soon. While mass stock-dumping can sink company valuations, it can also mean selling at a loss, which can hurt the organizations doing the divesting. It is not a decision made lightly.
Divestment becomes a much easier choice when stock values collapse because demand for a product implodes. Efficiency can help tip the balance. From LEDs and better batteries to improved insulation and high tech windows—or a strategic mix of all of the above and more through integrative design—efficiency chips away at demand.
For its part, the World Bank announced that as of 2019 it will no longer provide loans for oil and gas projects. Meanwhile, coal-intensive businesses are fast becoming uninsurable. More than a dozen major insurance companies have now pulled out of the market.
Fossil fuels stay in the ground because it simply doesn’t pay to take them out. No matter what politicians have promised, revenues from Arctic drilling will never make up for the deficit caused by the new tax bill because it doesn’t make financial sense to drill. Likewise, operating a pipeline to transport crude from Canada’s tar sands becomes a money-losing folly when oil prices are low, nor is there anything to be gained by threatening to seize Iraqi oil fields. Coal — sooner than later — will revert to a prop in a Dickens story.
Growing the Economy
Take another good look at the graph. Energy demand is less than half of what was predicted. This happened at the same time the American economy grew more than threefold as measured by GDP. By freeing up capital that otherwise would have have gone toward paying utility bills, efficiency played a pivotal role generating prosperity.
Unlike the wishful whimsy of “trickle down” economics, energy savings go directly to where they can do the most good—into the pockets of companies that can use the money to grow their businesses and into the pockets of consumers, extending their spending power. More subtly, efficiency reduces the embedded energy costs of physical goods and services. If all had gone according to 1970s predictions, the US would not only be a poorer country today, but also a far more polluted and a sicker one, too.
Yet while efficiency could be a powerful tool for climate activists, it rarely gets much attention because it is a hard story to tell. Heat pumps and clever plumbing are not the stuff of photo ops. Efficiency is an outcome, largely invisible, whose value compounds over time.
When it can be made visible, efficiency amazes. At a recent climate summit of North American mayors, Vancouver mayor Gregor Robertson boasted of the stringent building codes required for all new construction in his green-progressive Canadian city. By 2050, such baked-in efficiency is predicted to save $1,000 in utility costs for each household annually.
Lovins popularized the term “negawatt” to refer to energy that doesn’t need to be produced or paid for. Unfortunately, negawatts don’t show up on utility bills. We don’t see the bargain in the bill, just the due date for what’s owed.
The Thousand Mile Difference
Efficiency can be easier to see through the lens of miles per gallon (mpg). In the aftermath of the Israeli victory in the 1973 Yom Kippur war, a dozen Arab countries launched an oil embargo. Gas prices spiked in the US by 70% over just a few months, going from 39 cents per gallon to just over 55 cents. Converted into 2017 dollars, that’s $1.80 to $2.56, which actually doesn’t sound so terrible given that the average cost per gallon in mid-December 2017 was $2.45, according to AAA.
In 1973, however, cars averaged just 12 mpg. Today, the Subaru Crosstrek, the least efficient of the 12 most efficient SUVS—a category that didn’t even exist in the 1970s—gets 26 mpg in the city and 33 mpg on the highway, according to Kelly Blue Book. At the top of the list is an electric SUV, the Tesla Model X, which gets 91 mpg(e) in the city and 96 mpg(e) on the highway.
To break that down another way, a 15 gallon fill-up would take you 180 miles in 1973. Forty-four years later, the same fill-up in the Crosstrek is good for 312 miles in the city and 495 miles on the highway. The equivalent charge in a Tesla X translates to 1,365 miles in the city and 1,425 miles on the highway.
That jaw-dropping 1,000+ mile difference is efficiency. When the Tesla’s battery is charged using renewable solar or wind power, no fossil fuels are required at all. Yet even when the electricity comes from a gas or coal-burning power plant, the vehicle’s elegant design means that it goes much further per unit of energy.
It is possible that by the 2020s, the energy equivalent of the 1973 15-gallon fill-up could be enough to drive from one end of the country to the other.
Although it takes longer to recharge a battery than fill up a gas tank, that, too, is improving quickly. Fill-up times for hydrogen-powered vehicles, which are just beginning to get into the mix, are already comparable to a gas fill up.
We ogle at the design, marvel at the tech and swoon over the stats, but the implications of efficiency—the animating force behind it all—take a backseat to the shine and sparkle. That is exactly as it should be. People are buying something they want. The entire package, efficiency included, is the draw.
Global Market Forces
By 2020, sales of electric and hybrid vehicles in India could grow to as many as 7 million cars. A decade later, the goal is to be all electric. Meanwhile, China is using its considerable market clout, insisting that foreign automakers offer alternative fuel vehicles if they want access to Chinese consumers. By 2019, China is on track to have more “watts on the road” than the rest of the world combined.
This aggressive global shift toward efficient EVs acts as a strong counter-balance to the administration’s efforts to relax federal fuel efficiency standards on new cars. According to the Union of Concerned Scientists, such a move could require as much as 350 million additional barrels of oil over the next four years and cost American consumers $34 billion. No one wants to waste money on gas if they don’t have to. When EVs can out-compete gas guzzlers on the showroom floor—which is expected to happen within a decade as battery prices continue to fall—American fuel efficiency standards simply may not matter.
There is precedent for such a rapid shift. It took less than a decade for automobiles to replace horse-driven buggies as the dominant form of transportation on American streets at the turn of the 20th century. As cars became cheaper and car loans more popular, the number of car-owning households grew from 8% to 80%.
US policy is fast losing relevance in the face of free market realities. Within weeks of Tesla’s announcement that it would begin production of electric semi-trucks, Walmart, J.B. Hunt Transport Services Inc, Sysco Corp, PepsiCo and UPS put in orders. The lifetime operation costs are expected to be significantly lower than those of conventional diesel trucks. Meanwhile, Utah-based startup Nikola Motor Company is developing its own line of electric and hydrogen-electric semi-trucks.
The Brink
There is no question that the climate has tipped and that the cost is already staggering. Decades of methodical, meticulous science has definitively proved what has been known for nearly 60 years: carbon emissions from the burning of fossil fuels leads to global warming and climate change. Every single nation in the entire world except the United States is on board to do something about it.
According to a new report by the American Meteorological Society, 2016 witnessed three unprecedented, catastrophic weather events that would not have been possible in pre-industrial times:
- the most intense heat wave ever seen in Southeast Asia, with temperatures reaching the 110°s F and higher
- the emergence of a thousand-mile wide, three hundred-foot deep “blob” of warm water off the Northwest coast of the US linked to everything from algal blooms to drought in California
- the hottest year on record for the third year running
People are dying, crops are failing, cities are flooding, glaciers are melting and entire drought-ravaged regions are going up in smoke. Not only are insurance companies having a hard time keeping up, but NOAA’s monitoring algorithms have had to be tweaked to accommodate the accelerating pace of climate change.
As bad as things are, they could be worse. Efficiency has helped slow the rise in global carbon emissions. It is going take everything—wiser policies, more renewables, more innovation, more investment and more efficiency—to claw our way back from the brink, but it is still do-able.
In 2011, Lovins and RMI published “Reinventing Fire,” a detailed roadmap of business-based solutions to get the US off coal, oil and nuclear energy by 2050, while at the same time growing the economy at a robust clip and developing trillions of dollars in new economic value. Six years in and progress is roughly on track with Lovins’ projections.
The plan is based on existing technologies, does not include a carbon tax or require any acts of Congress to implement. Technological advances, a carbon tax and robust federal support would, of course, help speed things along.
Making America Worse Again
The President’s proposed 2018 budget and the Republican tax reform bill, however, reverse course and slow things down. They boost support for fossil fuels and nuclear power, including opening up public lands to oil drilling and uranium mining.
The administration has spent the last year conscientiously rubbing out any mention of “climate change” from federal websites and delisting it as a national security threat. Remarkably, fossil fuels have been recast from climate change villain to global security savior: “U.S. leadership is indispensable to countering an anti-growth, energy agenda that is detrimental to U.S. economic and energy security interests…”
In terms of energy, the “again” in “Make American Great Again” turns out to be the 1970s and ’80s, a time when projected demand for oil and coal was beyond bullish. In 1980, 825 million tons of coal was mined in the US with the prediction that by 2000 domestic consumption would triple and exports quadruple. Instead, nearly a hundred million tons less coal was hauled out of American ground in 2016 (728.4 million tons).
In 1980 there were 228,000 coal miners in the US. By 2016, there were fewer than 52,000, a drop of more than 75%. It takes far fewer miners today to mine a ton of coal. Collapsing demand coupled with automation mean the jobs aren’t coming back. Ever.
All over the world, competition from cheaper renewables, particularly solar, has led to mine closures. In Europe, hundreds of coal mines are losing money. Stricter pollution laws and carbon pricing are expected to make almost all of them unprofitable by 2030. In China, a coal glut is driving the closure of thousands of mines over the next few years.
Boosting Demand
If the rest of the world isn’t going to buy more coal and oil, then it becomes critical to boost domestic demand, which puts efficiency in the cross-hairs.
Cutting the popular Energy Star program, for example, which was proposed in the President’s budget for 2018, would help increase energy demand. For the last 25 years this comparatively small EPA program, with an annual budget of roughly $57 million a year, has tested and ranked consumer goods for efficiency. It has saved Americans more than third of a trillion dollars in energy costs — as much as $30 billion in a single year. It has also been popular among manufacturers, incentivizing innovation by providing a trusted label that reliably boosts sales.
Energy Star’s outsize impact has been especially important for sales of large appliances—washing machines, dishwashers, furnaces—that consumers purchase only once every decade or so. Energy Star helps buyers compare operational costs to determine which appliance delivers the most value and is in fact the better bargain over the the long haul.
Similarly, Energy Star’s program to certify commercial office buildings and homes can bake in efficiency—and savings—for decades. This is critically important in terms of climate change since buildings account for nearly 40% of carbon emissions in the US.
In another assault on efficiency, the Federal Housing Authority (FHA) announced plans to stop insuring new mortgages on homes financed with Property Assessed Clean Energy loans (PACE). Over the past decade, this popular program been used to retrofit 158,000 homes, financing $4.2 billion in energy improvements and creating 36,000 American jobs. Meanwhile, by cutting the home equity interest credit, the Republican tax bill removed another incentive to upgrade properties.
At Cross Purposes
Utilities make more money when ratepayers buy more energy, so efficiency puts them at odds with their customers. Savvy utility companies have been pivoting into more sustainable business models, finding more profits in selling efficiency services than in peddling electrons.
Less savvy utilities such as Kentucky’s LG & E and KU Energy have opted to cut efficiency services in order to pad the bottom line. By the utilities’ own estimates, efficiency has saved about 500 megawatts, or roughly a power plant’s worth of energy (a “negaplant”!). Instead of viewing the savings in terms of reduced costs—for example, a power plant that could be closed or one that wouldn’t need to be built—they have instead focused on flattened demand and declining revenues.
This is part of a larger issue that goes deep into the wonky weeds of wholesale energy markets. In early December, the Federal Energy Regulatory Commission (FERC) ruled that states cannot bar “efficiency services” from competing in wholesale markets because they play an important role keeping prices down. Kentucky, however, snagged an exemption, which means that by removing efficiency from the equation, retail energy prices in Kentucky are more likely to rise over time.
Competitive Advantage
In sharp contrast, many cities and states see efficiency as a strategic plus. New York, for example, just announced a new $12 million energy program targeting industrial and apartment buildings. Chicago’s Retrofit plan for existing buildings aims to cut carbon emissions by more than a half million tons while saving $45 million annually.
“Cities compete for talent and investment,” notes Vancouver’s Mayor Robertson. “The private sector has to choose where to locate.” Cleaner, greener cities with cheaper energy are a draw. In the jargon of economic development, it is a competitive advantage.
Efficiency savings can help pump up local economies. As noted earlier, it frees up capital that businesses can use to grow and consumers can use to spend on other things. There is also another, collective dividend. Cleaner, greener cities with more affordable energy have an edge at attracting new businesses and the jobs that come with them. This is especially true for tech companies competing for top talent. These sought after employees want to live where the quality of life is better. Breathable air and drinkable water matter.
China
In 2016, Lovins and RMI were part of an international team that developed another energy roadmap: Reinventing Fire: China. The Chinese government enthusiastically embraced the report, incorporating its findings as policy in the 13th Five Year Plan.
China’s rapid rise as an industrial power has come at a tremendous human cost. More people die of air pollution in China than anywhere else in the world. The impact of climate change is, of course, significant—linked to floods, droughts and even landslides—but pollution is an even more urgent motivation. A full third of Chinese deaths are linked to smog, a toxic mix of car exhaust, coal plant emissions and massive sandstorms laced with aerosolized agricultural chemicals. Cleaning up the mess has become as much a political imperative as it is an environmental one.
In astonishingly short order, a highly-motivated China has quickly climbed to the top of the global leader board on solar installations. In just the first six months of 2017, China installed more solar panels than had been installed in the US up to the end of 2016. In the solar equivalent of Moore’s Law, the more solar panels produced, the cheaper and better they get, spurring demand and innovation.
About a third—seven gigawatts—have been installed on buildings, which provides an additional efficiency benefit. While coal loses roughly two-thirds of its energy as heat at the power plant and another six percent traveling over wires, very little energy is lost with on-site solar. Add battery storage to the mix and electricity is reliably available night and day.
China has also made impressive gains in wind energy and hydrogen. Through its stunningly ambitious One Belt and One Road infrastructure initiative (OBOR), which connects 65 countries and nearly two-thirds of the world’s population, China is also in a position to sell its renewables and efficiency technologies throughout Asia, Europe and Africa.
And the Rest of the World
From India, which just announced the world’s largest solar-wind hybrid power plant, to Japan, which is going all in on hydrogen, countries all over the world are finding that the path to a low-carbon future comes with perks. It is also the same road to a low-cost energy future, which is more resilient, secure and prosperous. Just like cities, countries that are cleaner and greener, with energy that is both cheap and abundant, have an advantage.
The US, which had been leading the transition, is now falling behind at a rapid clip. The withdrawal from the Paris Agreement left a literal power vacuum that is quickly being filled. While the US cuts its commitment to the UN by more than a quarter trillion dollars, the Chinese have just signed an agreement to partner with the UN to help other countries meet their Sustainable Development Goals, which include clean, affordable energy.
Likewise, while the US administration has proposed cutting the federal budget for battery research by 75%, everyone else is ramping up. Within a decade, lithium ion batteries, which have fallen in price by a stunning 80% since 2010, are expected to fall even further to $100 kWh. That’s the magic number where electric cars can handily compete on sticker price with gas guzzlers. Tally up the savings from lifetime maintenance costs and internal combustion engine vehicles simply can’t compete. Several other kinds of batteries are also in development.
Batteries are key not only for mobility, but also for the power grid. In Germany, the shift to solar and wind power has at times overwhelmed the grid with too much energy. When there is more sun and wind than demand, prices go negative and customers are actually paid to use energy.
Batteries can provide stability, smoothing out the peaks and valleys of energy supply and demand to keep the grid running reliably—something that was dramatically demonstrated recently in Australia. Within weeks of installation, a 100-megawatt Tesla battery storage facility came to the South Australia grid’s rescue at least twice. In one instance, the Tesla facility kicked in within a fraction of a second after a glitch at a coal plant was detected — exponentially faster than the time required to fire up a back up coal plant.
The bottom line is the bottom line. As the rest of the world moves toward clean, cheaper, more reliable energy, the US becomes less competitive.
Form, Scale, Power, Future
Efficiency rarely grabs headlines. A new factory for making energy smart windows or the installation of low-friction pipes simply doesn’t generate the excitement of a massive solar array or a battery gigafactory, yet the impacts are no less significant.
Efficiency takes all kinds of forms, some perhaps more unexpected than others, but all capable of making a significant difference:
- blockchains used to better manage energy transactions at both macro and micro levels
- conservation agriculture to minimize fossil fuel inputs while improving soil carbon sequestration—at scale, the most economic, effective carbon storage option
- recycling carbon using smokestack emissions, methane and biomass to create fuels and chemicals
- adding green roofs to buildings; planting prairies and installing apiaries and mushroom farms in the midst of vast solar arrays; reimagining the side of the road—and the road itself
- a solar light / phone charger to replace kerosene as a lighting solution for 1.2 billion people living off the grid
Efficiency is also infinitely scalable. It can be as simple as a personal decision to drive less and bike more, or replace conventional light bulbs with LEDs. It can be part of a movement designed to put pressure on universities, corporations and foundations to walk the low carbon talk and help grow the market for efficiency technologies and services. It can be working with local government agencies to bake efficiency into building codes, or finding ways to leverage energy savings to help finance low-income housing. The benefits accrue and in combination compound. The gray wedge in the graph continues on a steep, steady upward trajectory.
Like Gandhi’s famous spinning wheel, efficiency, even in its most basic form, makes a powerful statement. Individually and together, we can use efficiency to change things for the better, starting right now.
Cut carbon. Cut costs. Slow climate change. Become more competitive. Grow the economy. Make the future great again.
Are you in?
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