Investments in improving the energy efficiency of the US building stock could result in savings that far exceed spending, said policy and economic advisory firm the Rhodium Group in a report, Unlocking American Efficiency.
Residential and commercial buildings account for 40% of the US’ overall energy use, with spending totaling $432 billion in 2011 – “on par with what US businesses spend on employee health insurance, and more than they pay in payroll taxes”, said the report, which was prepared for United Technologies, a firm that provides services to the building industry.
Drawing on research conducted with the participation of the World Business Council for Sustainable Development, the report found that existing technology and design options have the potential to make the US building stock 30% more energy efficient – in energy consumed per square foot – for an estimated $275 billion. Assuming spending occurred over ten years, amortized at 7% interest, $39 billion/year in building efficiency enhancements would result in $85 billion/year in energy savings, and shave 8% and 5% from natural gas and power prices respectively, saving an additional $10 billion/year.
The assessment suggested that lower energy costs would repay that $275 billion in four years or less, providing that spending targeted only the highest-performing efficiency investments – those that improve building efficiency by 30%. This implies an internal rate of return of 28.6% over ten years. “It’s an investment opportunity that is highly profitable,” the report said.
It also highlighted benefits of energy efficiency enhancements that go beyond pure financial returns, such as improving competitiveness, freeing up resources for other investments and lowering overall energy costs, which by extension reduces household spending. “In short, improving energy efficiency improves America’s economic growth prospects,” the report said.
Focus on Efficiency
Big names in energy have been calling for an intensified focus on efficiency as a demand-side means of managing energy costs, supply constraints, and carbon dioxide emissions, as well as boosting competitiveness and consumer welfare. Newly confirmed US Energy Secretary Ernest Moniz highlighted the importance of efficiency in his first public address since assuming the role. International Energy Agency Executive Director Maria van der Hoeven argued for an enhanced focus on efficiency in a recent op-ed for the Huffington Post.
The World Energy Council, a United Nations-accredited global network seeking to inform global, regional and national energy strategies, recently released data on energy efficiency showing that global energy efficiency improvement from 1990 to 2010, as the compound growth rate of energy intensity – the energy required per unit of economic output – was -1.3%.
What stands in the way of efficiency investment?
The report highlighted several impediments – market and regulatory – to making these sorts of investments in enhancing the energy efficiency of buildings, stressing that the biggest obstacle is a lack of good information. “Businesses are generally unable to compare the energy costs of different buildings when shopping for new floor space, because that information is not made clearly available to potential buyers or tenants,” it said.
It suggested that a labeling system analogous to a system that exists to help consumers make informed decisions about the energy efficiency of their appliances could assist businesses in selecting more energy-efficient commercial space. The Environmental Protection Agency’s Energy Star labeling system gives consumers a means of identifying energy efficient appliances.
The report also called for broad-based solutions at the federal level to scale-up energy-efficient design, engineering, construction and retrofitting. These could include new building codes, programs to improve the energy efficiency of Housing and Urban Development-funded housing stock, mandatory appliance standards and efficiency financing programs and tax incentives.
You can read the full report here.
