Investment in Efficiency Measures Can Offset U.S. Energy Demands of Next Decade
Investing $125 billion in efficiency measures over the next decade would reduce energy consumption and greenhouse gas emissions in the U.S. commercial sector to pre-2008 levels, according to a new report by the consulting group
McKinsey & Co.
The commercial sector consumed 6.7 quadrillion BTUs of end-use energy in 2008, mostly from operating an enormous stock of buildings and their systems and equipment. That figure, more than twice the amount of annual energy consumed by the entire country of Egypt, is projected to grow to more than 8 quadrillion BTUs (quads) in 2020.
But annual efficiency investments of about $13 billion above current investment levels would reduce the sector’s energy usage to below 5.8 quads in 2020, a savings of nearly 30 percent over projections, the report found. That would also save $290 billion in energy costs and reduce GHG emissions by 360 million tons.
See the study.
“We are the Saudi Arabia of energy efficiency. There is more potential (for efficiency) in this nation than anywhere else in the world,” Ken Ostrowski, a senior partner of McKinsey, said at a press conference announcing the results of the study on Wednesday. “The scale is vast, if we can put together the means to pursue it.”
The report, titled
Unlocking Energy Efficiency in the U.S. Economy, looked at energy efficiency potential in the U.S. residential, commercial and industrial sectors (transportation was not part of the study). Overall, it found that a 10-year investment of $520 billion would trim the nation’s projected energy consumption in 2020 by 23 percent and erase 1.1 gigatons of annual GHG emissions, while “measurably” reducing the need for additional energy infrastructure such as power plants.
The funding needed to spur those reductions represents a roughly $50 billion increase in annual energy efficiency investment, which is currently in the $10 billion range, McKinsey representatives said. But the added investment would pay off, they stressed Wednesday, producing $1.2 trillion in cost savings -- more than double the initial investment.
“Another way to think about that is if we do nothing, we will waste $1.2 trillion of energy,” Ostrowski said.
The report did not factor carbon pricing into its results, which would significantly raise total efficiency potential, McKinsey said.
Within the residential sector, more than 70 percent of efficiency potential is connected with buildings, the study found. That figure jumps to nearly 90 percent in the commercial sector, reinforcing the essential role of buildings in capturing energy efficiency.
“This confirms a critical path forward that we have long championed,” Rick Fedrizzi, president and CEO of the U.S. Green Building Council, one of the report’s sponsors, said in a statement.
The report estimated that 810 trillion BTUs could be saved in existing, privately owned buildings by 2020, which is more than the efficiency potential in all existing government-owned buildings and yet-to-be constructed privately held buildings combined. Building-related equipment and devices, such as computers, servers, medical equipment and office appliances, offer about 570 trillion BTUs of efficiency potential.
To capture those savings, voluntary standards (such as the Energy Star and LEED programs) and stronger policy initiatives would need to compliment new investments in incentives, financing solutions and educational outreach, the report suggested.
Yet, engrained barriers that discourage energy efficiency would also need to be overcome, which was a focus of the McKinsey report and a
separate study released the following day by the
American Council for an Energy-Efficient Economy, a nonprofit group.
The ACEEE study found that economic models have routinely and vastly understated the positive economic impact and cost-effectiveness of energy efficiency, leading policymakers to become “frozen in inaction,” John A. “Skip” Laitner, director of ACEEE’s Economic and Social Analysis Program and a co-author of the study, said in a press briefing Thursday.
Other more familiar obstacles to commercial real estate professionals, such as capital constraints, lack of information and short payback-period expectations on efficiency investments, are also difficult to overcome, the McKinsey study found.
According to Ostrowski: “The decision of how much [efficiency potential that] gets captured will ultimately be up to policymakers and business leaders in terms of the determination of which programs get pursued and at what level of aggressiveness.”