Forbes, July 7, 2008

THE CASE FOR EFFICIENCY

[Rachel's introduction: Energy efficiency can save trillions in national costs, but its side benefits are often even more valuable: 6% to 16% higher labor productivity in efficient offices, 20% to 26% faster learning in well-day-lit schools, 40% higher sales in well- day-lit shops, faster healing in efficient hospitals.]

By Amory B. Lovins

Using smarter technologies, more brains and less money to wring more work from less delivered energy--what energy experts call "end-use efficiency"--is the largest, cheapest, safest, cleanest, fastest, most diverse, least visible, least understood and most neglected way to provide energy services.

How big is it? The 46% drop in U.S. energy intensity, a measure of energy consumption per dollar of real gross domestic product, during 1975-2005 represented, by 2005, the equivalent of a new energy "source." This source was slightly larger than annual total European energy use, 2.1 times the size of U.S. oil consumption, 3.4 times bigger than U.S. net oil imports, six times domestic oil output or net oil imports from OPEC countries and 13 times net imports from Persian Gulf countries.

But because these savings came not from giant plants but in zillions of tiny pieces imperceptible to the untrained eye, energy efficiency gets little respect. It's ironic, given that rising energy prices automatically make efficiency gains more valuable, and cheaper to attain. And we've barely scratched the surface. Fully exploiting wherever practical the best available efficiency techniques throughout the U.S. economy could save half our oil and gas use, and three- fourths of our electricity, at about an eighth of their current price. Innovative designs, technologies, policies and marketing methods are increasing that potential faster than we are using it up.

The three big efficiency stories--oil, gas and electricity--are all remarkable. As detailed in a Pentagon-co-sponsored 2004 study titled "Winning the Oil Endgame," half of U.S. oil can be saved for the equivalent of $12 a barrel, mainly by tripling the efficiency of cars, trucks and planes--without sacrificing consumer-pleasing design.

Fantasy? Not really. Already, Boeing is beating Airbus with the 787 Dreamliner--a plane that's 20% more efficient than rivals but costs about the same. Wal-Mart, nearly done boosting its trucks' efficiency by 25%, is set to make billions more by doubling their efficiency by 2015. And the hottest strategic trend in automaking--led by Ford Motor, Nissan and China--is making lighter, safer and more fuel- efficient cars.

Another example: natural gas. Half its use can be saved at an eighth of its price, two-thirds indirectly. At times of peak demand, electricity is made largely from natural gas in turbines so inefficient that saving 1% of U.S. electricity, including peak hours, saves 2% of total natural gas use and cuts its price 3% to 4%. This saving is more than paid for by the value of the saved generating capacity, so the net cost of saving the gas itself is less than zero.

Three-fourths of U.S. electricity--69% of which is used in buildings, nearly all the rest in industry--can be saved for less than the price of just running a coal or nuclear plant. This "negawatt" potential is not just in smarter motors, lights, appliances, etc., but even more in their larger systems. For example, three-fifths of the world's electricity runs motors, and half their shaft power runs pumps and fans. Designing friction out of pipes and ducts can save 10 times as much fuel at the power plant.

The savings are arrestingly simple: Redesigning a standard pumping loop in one factory saved 92% of the pumping power--with lower construction cost and better performance. Even better design could have saved about 98% at lower cost. The secret: Use fat, short, straight pipes rather than thin, long, crooked ones.

More broadly, better design can make very big savings cost less than small savings, turning diminishing returns into expanding returns (For more detail, you can watch my lectures at Stanford's school of engineering. My team of practitioners, lately redesigning $30 billion worth of diverse facilities in 29 industrial sectors, typically finds 30% to 60% savings with two- to three-year paybacks on retrofit, and 40% to 90% savings in new facilities with generally lower capital cost.

Energy efficiency can save trillions in national costs, but its side benefits are often even more valuable: 6% to 16% higher labor productivity in efficient offices, 20% to 26% faster learning in well- day-lit schools, 40% higher sales in well-day-lit shops, faster healing in efficient hospitals. When you count these kinds of side benefits, you double the cost-effective energy savings in a typical steel mill.

Yet the efficiency cornucopia is the manual model: You have to turn the crank. Like any worthy management goal, saving energy requires leadership, learning, metrics, alignment, relentless patience and meticulous attention to detail. There are scores of real obstacles to be overcome. But in any business struggling for energy and capital, energy efficiency is often the highest-return, lowest-risk investment available, limited less by technology or economics than by culture and imagination.

Using energy in a way that saves money protects the climate too, not at a cost but at a profit. McKinsey and Co. found that profits from U.S. energy efficiency can probably more than pay for other climate- protecting measures. And while politicians debate theoretical costs, smart firms race for real profits. IBM and STMicroelectronics have cut their carbon intensity 6% a year. BP made over $2 billion substituting efficiency for fuel; DuPont and Dow Chemical, $3 billion apiece.

General Electric aims for 30% savings by 2012 to build shareholder value. United Technologies cut its energy intensity 56% in a decade. Interface built the carpet industry's most oil-independent cost structure while cutting its greenhouse gas emissions 82%.

We can save our bottom lines, and maybe our butts, by taking economics--and efficiency--seriously.

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Physicist Amory B. Lovins has been a leading practitioner of advanced energy efficiency in buildings, vehicles and industry for over three decades. He is co-founder, chairman and chief scientist of the Rocky Mountain Institute, an independent, entrepreneurial, nonprofit think- and-do tank that implements transformational energy and resource efficiency, chiefly in the private sector.