Low-Hanging Fruit: The Economics of Energy Efficiency

The United States saved 107 quads of energy through efficiency from 1970 to 2008, translating to $1 trillion in cost savings. Investments in energy efficiency saved an estimated $19.4 billion in energy costs for the year 2004 alone.
Energy efficiency-related investments employed nearly twice as many people as energy supply investments in 2004.
As an investment, energy efficiency has on average about a 25 percent annual return (compared to U.S. Treasury bills and long-term corporate bonds at less than 10 percent) and a risk index level below 10 percent (slightly higher than T-bills and slightly lower than bonds).
Closing the “efficiency gap” requires policies and investments that develop economic, technological, and behavioral mechanisms to incentivize energy efficiency, as well as catalyze innovation.
California energy efficiency efforts have paralleled a steady per capita electricity usage rate with a rapid increase in GDP since 1975. Concurrently, the rest of the country’s per capita use of electricity has increased substantially, and its GDP has not experienced as high a rate of increase.
In California, electricity savings have been gained through utility demand side management programs (DSM), building energy standards, and appliance standards.
Education on energy efficiency is needed at all levels, from Congress to community groups and businesses to individual consumers.
Behavior accounts for significant potential in energy savings. Household energy consumption could be reduced by about 22 percent (8 quads) by behavioral improvements such as keeping tires properly inflated and placing refrigerators a few inches away from the wall.
Behavioral research and consumer education needs public policy support, possibly with the help of an Energy Efficiency Resources Standard (EERS), which would consist of energy savings targets for utilities.

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