Energy efficiency is a way of managing and restraining the growth in energy consumption. Something is more energy efficient if it delivers more services for the same energy input, or the same services for less energy input. For example, when a compact florescent light (CFL) bulb uses less energy (one-third to one-fifth) than an incandescent bulb to produce the same amount of light, the CFL is considered to be more energy efficient. ~International Energy Association (IEA)

What Is Energy Efficiency?

According to the Lawrence Berkeley National Laboratory (LBLN), energy efficiency is “using less energy to provide the same service.”[1] A couple of examples:

When you replace a single pane window in your house with an energy-efficient one, the new window prevents heat from escaping in the winter, so you save energy by using your furnace or electric heater less while still staying comfortable. In the summer, efficient windows keep the heat out, so the air conditioner does not run as often and you save electricity.[2]

When you replace an appliance, such as a refrigerator or clothes washer, or office equipment, such as a computer or printer, with a more energy-efficient model, the new equipment provides the same service, but uses less energy. This saves you money on your energy bill, and reduces the amount of greenhouse gases going into the atmosphere.[3]

Energy Efficiency Is Not Energy Conservation

LBNL explains: “Energy conservation is reducing or going without a service to save energy. For example: Turning off a light is energy conservation. Replacing an incandescent lamp with a compact fluorescent lamp (which uses much less energy to produce the same amount of light) is energy efficiency.”[4]

The Need for Energy Efficiency

According to the World Bank, energy poverty means two things: “Poor people are the least likely to have access to power. And they are more likely to remain poor if they stay unconnected. Around one in seven, or 1.1 billion people, don’t have access to electricity, and almost 3 billion still cook with polluting fuels like kerosene, wood, charcoal, and dung.”[5]

The good news is that, according to the latest data, “more poor people are gaining access to electricity at a faster rate than ever before. But the share of renewable energy is not growing at the same speed. And we are lagging behind in improving energy efficiency.”[6] And, according to the IEA, energy efficiency is now the largest source of energy in high-income countries. (This is due to the fact that energy saved is energy that can be used elsewhere.) “China is the giant in reducing energy intensity, saving as much energy as it consumed between 1990 and 2010.”[7]

This means we can cut the link between economic growth and energy demand just by improving energy efficiency.[8]

A little energy efficiency will go a long way toward saving energy—and the planet: Approximately 10% of all U.S. electrical generating capacity is in place to meet the last 1% of demand.[9] If we applied all the energy efficiency technologies that are already available today, we could cut energy consumption by about a third.[10]

Back in 1990, physicist Amory Lovins reported in his now-famous “Negawatt Revolution” paper “how technology from the time could be harnessed to save three fourths of electricity in use by companies. In the examples provided, savings can be found from lighting improvements, such as switching from incandescent lamps to compact fluorescent lamps.”[11] This proportion still holdsA recent study by LBNL and the American Council for an Energy Efficient Economy (ACEE) shows that Negawatts are cheaper; as little as 4.5 cents kilowatts per hour.[12]

Does Energy Efficiency Work?

Grist recently reported:

So, say you are a government, and you want to persuade people to conserve electricity — because using less energy is one of the easiest ways out there to fight climate change. You could institute something like a carbon tax, but that’s not going to happen in the U.S. Instead, you come up with a plan that’s a total crowd pleaser: Everyone who manages to reduce their electrical bill by 20 percent compared to the previous year will get an additional 20 percent off from the savings they just earned by consuming less. Everyone is enrolled automatically: rich, poor, hippies, yuppies, people who compulsively unplug appliances when they are done using them, people who leave the porch light on all night because they’re scared of an unlit porch.

This program actually happened, in California, in 2005, although it was designed to help with the state’s energy crisis, rather than to cut carbon emissions. It was called the 20/20 program, and it was popular — both with people who got discount power that summer and with scientists, because it provided a really good data set.

Most recently, Koichiro Ito, a researcher working with the Energy Policy Institute in Chicago, looked at the data and turned it into a paper that was published this July in the journal Economic Policy. The title of the paper — “Asymmetric Incentives in Subsidies: Evidence from a Large-Scale Electricity Rebate Program” — is sort of a mouthful, so I will summarize this way: If you offer people money to inconvenience themselves on behalf of the environment, Ito writes, it’s the poor people who are really going to take you seriously.

Ito found that, in more temperate and affluent coastal California, the incentive program had no effect. But in the valleys inland, where the summers are like a blast furnace and where a friend of mine once spent a reporting internship being sent to interview people about how hot it was (“Really hot,” was the typical answer), people actually buckled down and used less energy. They were the ideal target for conservation incentives, even if no one was aiming at them specifically.[13]

U.S. Trends

According to Utility Dive:

  • There were 3.7 trillion kWh of electricity sold in the United States in 2015, and the Energy Information Administration expects that figure to rise 0.7% annually through 2040, with growth slowed by a decline in energy intensity.
  • In the residential sector, sales will grow just 0.3% annually, slowed by efficiency but still increasing due to a rise in the number of households. The average amount of electricity purchased per household is expected to fall more than 11% by 2040.
  • While the residential sector is currently the largest consumer of power in the U.S., commercial sales will top them by the early 2020s thanks to an 0.8% annual rise in sales.[14]

Energy and Poverty

According to Citylab, “There’s a shift underway in how Americans consume energy. That’s largely due to increasing efficiency, decreasing demand per capita, and the rapid expansion of renewable energy sources. Still, the share of income that low-income households spend on electricity rose by one third in the last decade, according to a new analysis by the nonprofit renewable energy advocacy group Groundswell. In fact, the bottom 20 percent of earners spend almost 10 percent of their income on electricity, more than seven times the portion of income that the top 20 percent pays.”[15]

According to the Natural Resources Defense Council (NRDC):

  • The overwhelming majority of single-family and multifamily low-income households (those with income at or below 80 percent of area median income), households of color, and renting households experienced higher energy burdens than the average household in the same metropolitan area.
  • For example, low-income households—many of whom live in older housing with poor ventilation and aging, inefficient appliances and heating systems—spend, on average, 7.2 percent of their income on utility bills, which amounts to about $1,700 annually out of $25,000 in median household income. That is more than triple the 2.3 percent spent by higher-income households for electricity, heating and cooling.
  • African-American households experienced a median energy burden 64 percent greater than white households (5.4 percent and 3.3 percent, respectively), and Latino households had a median burden 24 percent greater than white households (4.1 percent and 3.3 percent, respectively).[16]

Alabama and the Southeastern States

According to the NRDC, low-income households in the Southeast and Midwest, while having among the lowest average energy prices, had the highest average metropolitan energy burdens. Although the NRDC report did not establish a causative relationship, we do know that Southeastern utilities have the lowest investment in energy efficiency programs when compared to other regions.[17]

Alabama’s energy expenditure was $3,467 per person in 2012.[18]

What’s Wrong with This Energy Picture

According to Vox:

There is one key fact about utilities that average people need to know in order to understand their current dysfunction.

It is this: US power utilities almost universally operate under what is called cost-of-service regulation (COSR). In a nutshell, they make money by building stuff.

The thinking behind COSR is pretty simple. Utilities are state-protected monopolies, so we can’t have them profiting off their main product. By law, they have to sell power to ratepayers without any markup.

Yet to provide service to their customers, they need investment money to build out new substations, transformers, meters, and power lines. How can we induce private investors to put up money for public capital investments? We offer them — utility shareholders — a safe and predictable rate of return on those investments.

All "prudent" capital investments by utilities are guaranteed the same rate of return; that’s how shareholders make money. The "prudent" part is supposed to be enforced by public utility commissions (PUCs), but in practice, in "prudence reviews," there’s an information asymmetry (utilities know more than PUCs or outside advocacy groups) and PUCs are often cozy with utilities anyway.

In short, investor owned utilities (IOUs) have every incentive to build more stuff. In fact, since it is their legal obligation to maximize returns to shareholders, it is their legal obligation to build as much stuff as possible (and, ahem, prudent). And PUCs have limited ability to restrain them.[19]

To the Future… And Beyond

According to Utility Dive, quoting the 2016 Johnson Controls Energy Efficiency Indicator survey, which included more than 1,200 facility and energy management executives in the United States, Brazil, China, Germany and India, International interest in energy efficiency is “at an all-time high.”[20]

Half of respondents said they are paying more attention to efficiency than a year ago, and almost three-quarters expect to boost efficiency investments within the next year—both figures representing marked rises within the last three years.[21]

Utility Dive reports that “Cost reductions remain the primary driver of efficiency interest, though the survey also recorded growing focus on energy security, emissions reductions, policy and reputation.”

[2] Ibid.

[3] Ibid.

[4] Ibid.

[6] Ibid.

[7] Ibid.

[8] Ibid.

[17] Ibid.

[21] Ibid.

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