Energy Use Can Be Cut by Efficiency, Survey Says

By Steve Lohr
New York Times
November 29, 2006

The growth rate of worldwide energy consumption could be cut by more than half
over the next 15 years through more aggressive energy-efficiency efforts by
households and industry, according to a study by the McKinsey Global Institute,
which is scheduled to be released today.

The energy savings, the report said, can be achieved with current technology
and would save money for consumers and companies. The McKinsey report offers a
long list of suggested steps, including the adoption of compact fluorescent
light bulbs, improved insulation on new buildings, reduced standby power
requirements, an accelerated push for appliance-efficiency standards and the use
of solar water heaters.

Those moves, among others, could reduce the yearly growth rate in worldwide
energy demand through 2020 to six-tenths of a percent, from a forecast annual
rate of 2.2 percent, the report concluded.

The estimate of potential energy savings is one conclusion of a yearlong
research project by McKinsey that analyzes energy productivity worldwide by
regions, fuels and industrial and residential markets.

To take advantage of the energy-saving opportunities, some product standards
would have to be tightened and some policy incentives changed. Current
regulations and fuel subsidies, for example, often favor consumption over
efficiency. But many steps are not taken, the report said, because energy users
lack information or do not value efficiency enough to change their buying habits.

“The opportunities are huge and yet they are being left on the table,” said
Diana Farrell, director of the McKinsey Global Institute, a research arm of the
McKinsey consulting firm. “Standard economics would say that energy prices would
work their way through everything. But that’s not really the case, particularly
in the consumer market.”

That is especially the case, according to other energy experts and executives,
if an energy-thrifty product has a slightly higher purchase price and the
financial payoff for users takes a while. That helps explain the slow progress
made by compact fluorescent light bulbs in the marketplace. Years ago, these
efficient light bulbs cost up to 10 times as much as conventional incandescent
bulbs, and their light had a somewhat different hue.

But today, the light spectrum has been corrected and compact fluorescents are
only slightly more costly than conventional bulbs, yet they last 10 times as
long and consume 75 percent less electricity. The overall financial advantage of
using compact fluorescent bulbs is obvious and sizable, even if the initial
purchase price is higher.

“One of the great mysteries is why the public has not shifted faster to
fluorescent bulbs,” said Alexander Lidow, a Stanford-educated physicist and the
chief executive of International Rectifier, a maker of power management
equipment for energy-efficient appliances.

Such shifts might well go more quickly if electric utilities were encouraged to
promote efficiency. Under state rate regulation, utilities are compensated for
producing energy, but rarely for conserving it. A few states, notably
California, allow electric companies to pass through the costs of energy-saving
programs, but they are the exceptions.

“With changes in state regulation, we could really stimulate energy efficiency,”
said James E. Rogers, chief executive of Duke Energy, a big utility in the
Midwest and Southeast.

Energy-saving investments, Mr. Rogers said, would include on-site visits by
experts to advise consumers on how to make their homes more energy efficient;
pass-through subsidies for the purchase of fluorescent light bulbs; and
sophisticated network technology to manage energy use remotely during periods of
peak demand.

Mr. Rogers, who is chairman of the Edison Electric Institute, a utility trade
group whose members provide 60 percent of the nation’s electric power, refers to
energy efficiency as the “fifth fuel” for electricity, after coal, natural gas,
nuclear and renewable fuels.

“The most efficient and environmentally responsible plant you can build is the
one that you don’t build,” he said.

By easing demand, efficiency programs can help restrain energy prices and help
curb global warming. In the long term, the way to deal with global warming is to
switch from burning fossil fuels, which emit carbon dioxide, the main global
warming gas, to new clean-up technologies like carbon sequestration, which
refers to processes that remove carbon from the atmosphere.

But Jeremy Symons, a climate expert at the National Wildlife Federation, said,
“Energy efficiency is an important part of any intelligent climate control

The energy-saving opportunities identified in the McKinsey report are steps in
what Stephen H. Schneider, a climatologist at Stanford, refers to as a “start
smart” approach to global warming policy. “The economy needs time to adjust, the
politics takes time to gel and people need to understand and get use to change
to really support the big moves,” he said.


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