February 4, 2002

An Efficient Solution

The right energy investments could pay big dividends

By Ned Ford

California had an energy crisis last winter and the whole U.S. economy was hit by a surge in demand for natural gas accompanied by a gasoline-price spike. Now we're engaged in military action close to the Middle East, where much of the world's oil is. Even more telling of our vulnerabilities: One bullet from a drunken deer-hunter's rifle shut

down the Alaska pipeline, which runs through 800 miles of wilderness, for three days last month. We should be looking for better ways to meet our energy needs.

In his May 17 presentation of a National Energy Strategy in Minneapolis, President Bush said that " ... we need a new tone in discussing energy and the environment, one that is less suspicious, less punitive, less rancorous. We've yelled at each other enough. Now it's time to listen to each other, and act."

Agreed. Now listen to this, Mr. President: Steady improvements in energy- efficiency may be the best way to strengthen the economy. The U.S. Department of Energy's Clean Energy Future report of November 2000 found that both of its scenarios to reduce greenhouse gas emissions have lower revenue requirements than the business-as-usual scenario.

The DOE's report showed that more than 30% of U.S. energy consumption can be eliminated for less money than it presently costs to provide the energy in the first place.

While this may understate the case, it clearly justifies getting an immediate start on identifying and acquiring cost-effective energy efficiency.

Any significant move toward efficiency will reduce costs of higher efficiency products and encourage development of important technologies that are not yet commercially available.

Strides to increase energy efficiency would modernize our energy infrastructure. So common is the presumption that we live in an efficient society that many are simply unwilling to examine the prospect of a huge untapped efficiency resource. Yet anyone can buy a long-life compact fluorescent 15-watt bulb for about $7. Its 15 watts provide the light of a 60-watt incandescent bulb. Over 10,000 hours, the purchaser saves $36 if power costs eight cents per kilowatt hour.

Thus, that bulb pays about a 7% annual return on top of its capital recovery if it is used for a half-hour per day. The average U.S. bulb burns an hour per day.

Meanwhile, the average incandescent bulb in a commercial establishment is on 16 hours per day, and replacing it with a fluorescent would pay about a 190% return in a year.

In California, where state electricity-efficiency programs have operated for two decades, nine out of 10 central air-conditioning units sold in 2000 were low-efficiency, even though large utilities offered rebates equal to the cost differential of about $225 -- and the typical higher-efficiency unit would save the consumer $1,250 over 10 years (or closer to $2000 at California's new rates).

An effective efficiency strategy might require a 5% surcharge on electricity rates, with the revenue used exclusively to provide grants, cost-sharing schemes and incentives for projects that yield more money in retail-energy savings than the public share of the project costs.

There is extensive precedent, from real-life experience with utility-efficiency programs, to show the cost of saving energy to be equivalent to the amounts the Bush administration plan proposes to provide, around $11.5 billion annually.

Saving this much energy would eliminate all growth of CO2 emissions from the electric sector; allow us to replace retiring nuclear plants by generating electricity with fossil fuels in more efficient plants and, by using electricity more efficiently in our appliances, industrial processes, and manufacturing, reduce existing CO2 emissions by at least 2% per year, averaged over several years.

Now compare an energy-efficiency strategy to the Administration's plan to build 70 new power plants each year for 20 years: The Bush plan's 70 new 300-megawatt combined-cycle natural- gas plants would have a slightly lower capital cost than the efficiency strategy, about $10.4 billion per year. But then you'd have to add their fuel costs, interest on borrowed funds and net profit for the companies to the cost of the plants themselves. Then add transmission and distribution costs, and a hefty percentage of the entire investment for reserve margin.

Total electric-industry revenue requirements after 20 years under the Bush approach will be 150% of revenue required in the first year. The efficiency strategy would result in industry revenue requirements in the 20th year of about 84% of those of the first year. (Both values assume that many moving pieces would stay still, but the efficiency approach reduces upward price pressure in a number of ways.)

We have sufficient untapped efficiency potential to allow this approach to proceed for at least 20 years, by which time renewable energy should be entering the market on a large scale.

This analysis understates the costs of the Administration plan. For one major thing, there isn't nearly enough natural-gas transmission capacity for the plan to proceed without raising the cost of gas transmission.

Meanwhile, a strong efficiency program does not rule out the construction of new power plants. In fact, the best economic and environmental result will come about through the gradual replacement of existing coal and nuclear plants with more efficient and cleaner plants.

President Bush's Energy Strategy acknowledges that the U.S. economy is 42% more energy-efficient today than it was in 1970, as measured by primary energy consumed per unit of gross domestic product. This means that energy efficiency has added more energy service to the U.S. economy than all the new supply resources added since 1970. We should build on that experience, not ignore it.

Notably, one of the most important sources of efficiency has been the federal law mandating levels of fuel economy for automobiles.

Even though the fuel economy standard hasn't been changed in 20 years, a 45- mpg average is technically feasible and economically justified.

This doesn't mean a ban on sport-utility vehicles; rather it means that SUVs ought to get the same number of miles per gallon that many existing vans and heavy pickup trucks get -- so that the total fleet of SUVs, economy cars and all other vehicles averages 45 miles per gallon.

The current standard averages overall efficiency exactly the same way a higher standard would: It is the ultimate form of market-based regulation, where the government determines the overall desired result, and the industry and its customers are free to achieve it however they like.

And more important than setting a 45-mpg final standard is starting immediately to move in the right direction, to raise the efficiency of all vehicles.

Global warming is a great deal more serious and scientifically defined than the United States publicly acknowledges. We are already on the verge of adding so much carbon to the ocean that its ability to absorb carbon dioxide from the air will diminish. When we cross that limit, we commit the Earth to higher carbon dioxide levels for centuries, regardless of how much we cut emissions after that.

But you don't have to believe in global warming to believe in energy efficiency. All you need to do is seek a generous return on investment.

Ned Ford is a volunteer environmental activist who chairs the Energy Technical Advisory Committee of the Sierra Club.