Why care about building energy efficiency?

No matter what your political orientation, the information contained in the year-old report from the Center for American Progress is powerful and difficult to refute.  The authors make a strong case for energy efficiency improvements in the building sector.  One of the critical market failings, they say, is a lack of information and transparency about energy efficiency measures, costs and benefits. 



Excerpt from Rebuilding America: A Policy Framework for Investment in Energy Efficiency Retrofits by Bracken Hendricks and Benjamin Goldstein from Center for American Progress and by Reid Detchon and Kurt Shickman from Energy Future Coalition August 2009.


"Investments in building efficiency retrofits can simultaneously address the challenges of economic recovery, energy insecurity, and global warming by laying the foundation for sustained economic growth, driving demand in the construction and manufacturing sectors, and creating hundreds of thousands of good jobs across the country. Retrofitting our homes and businesses will also slash consumer energy expenditures, increase real estate values, and provide low-cost, near-term reductions in global warming pollution.

Today, buildings account for 70 percent of all U.S. electricity consumption and 40 percent of total U.S. greenhouse gas emissions. Yet much of our housing and building stock is old, inefficient, and unnecessarily wasteful. While building codes and green building standards offer a tool for achieving deep improvements in energy use for new buildings, half of the buildings that will be standing in 30 years already dot our landscape. Any strategy to capture the benefits of energy efficiency in our “built environment” must include a program to retrofit our existing stock of residential, commercial and industrial structures.

Deep building retrofits can cut energy use by 20 to 40 percent with proven techniques and off-the-shelf technologies. Best of all, they can pay for themselves from the energy they save. “Rebuilding America,” a national program to cut energy waste in buildings, could reduce energy bills economy-wide by hundreds of billions of dollars annually. Energy efficiency retrofits also create good local construction jobs across the country at a time when well over a million construction workers sit idle in a sagging housing market. Demand for the manufactured products needed to retrofit buildings will also result in jobs by revitalizing the manufacturing sector and contributing to sustainable, long-term economic growth.

If building retrofits can be profitable and offer so many additional social and economic benefits, why has a large-scale market not yet materialized? The short answer is that the market for energy efficiency faces many information failures and real market barriers. Without specific public policies to encourage widespread private investments in energy efficiency, the great value of this market will be left unclaimed. The U.S. economy will be worse off for this failure to act. So too will our planet.

The failures evident in the lack of a thriving nationwide marketplace for energy efficiency products and services include:

• Poor availability of information for consumers about their energy consumption.
• Split incentives between building owners and tenants to invest in energy efficiency retrofits.
• Lack of capital or access to capital to support investments in energy efficiency.
• Limited tenancy or ownership structures that encourage short-term decision making
  and do not take into account the benefits of energy efficiency.
• Perceived costs of retrofits, and a lack of knowledge about available solutions.
• General risk aversion by consumers, especially when loans are tied to their personal
  credit instead of conveying with property.
• Disaggregated energy efficiency markets where many small decisions about purchasing, materials, operations, and maintenance are required in order to realize savings.
• High up-front borrowing costs for retrofits.
• The risk of creditor default in a real estate finance market that today is severely constrained."

Policy makers tend to lean heavily on "education" as the critical path to changing the conservation picture.  Education is necessary, but not sufficient to change this picture.  This country has focused on energy conservation education in various forms for over thirty years.  Jimmy Carter's "sixth principle" of a comprehensive energy policy was a very straightforward one "The sixth principle, and the cornerstone of our policy, is to reduce the demand through conservation. Our emphasis on conservation is a clear difference between this plan and others which merely encouraged crash production efforts. Conservation is the quickest, cheapest, most practical source of energy. Conservation is the only way we can buy a barrel of oil for a few dollars. It costs about $13 to waste it." (see http://www.pbs.org/wgbh/amex/carter/filmmore/ps_energy.html for a very interesting read). 

Let's not get bogged down in politics.  My point is simple.  Why hasn't conservation taken hold in the last 30 years?  Because information and market breakdowns persist.  Those breakdowns have inhibited demand for important new energy technologies.  But education alone won't do it-- real, actionable market and cost information that saves consumers money and identifies investment opportunities will be a critical path toward finally addressing the conservation breakdowns in this country.  Innovation will follow from there.  How educated did people need to be in order to buy an iPod or a Blackberry?  Not at all.  Where are the  iPods and Blackberries of the energy sector?  They don't exist, because consumers, large and small, don't have the market and cost information they need to demand new technologies and entrepreneurs have not developed compelling or interesting products that address these various needs.  I would argue that our future as a race depends on solving these problems now-- and not continuing to quote and reference the challenges 30 years on.