One of the most respected consulting firms in the world has published a new report detailing the potential savings from energy efficiency programs.  McKinsey found that the United States could save $1.2 trillion by the end of 2020 through investments that increase energy efficiency such as smart grid projects, replacing old inefficient household appliances, and improving building insulation.

The savings do come at a steep up-front cost – an estimated $520 billion according to McKinsey to get all the efficiency programs enacted.  Still, the amount of savings far exceeds the up-front cost and the amount of energy saved would be “greater than the total of energy consumption of Canada,” according to Ken Ostrowski, a senior partner at McKinsey.  The vast efficiencies realised would also more than offset the expected energy demand increase in the United States through 2020.

“The scale is vast if we can put together the means to pursue it,” said Ostrowski in an interview with The New York Times.  

Efficiency gains in residences account for around 35 percent of the total amount, according to the report.  The commercial sector would realise 25 percent of the total and the industrial sector would save the largest share – 40 percent of the total.

The $1.2 trillion amount mentioned in McKinsey’s report only considered situations where the efficiency investment costs are eventually less than the economic benefits realised as a result.  The transportation sector wasn’t included and neither was a value set for carbon emissions.  The savings could be considerably greater if a value is pegged to carbon emissions, an additional 8 percent at $30 a ton, according to the report.

The amount of investment involved, however, is between four and five times the amount invested in national energy efficiency programs in 2008 for ten years in a row.  Funds dedicated to the cause in this year’s stimulus package are inconsequential, according to the report.

There are other significant barriers to achieving $1.2 trillion in energy savings.  Home owners may not be able to afford the efficiency enhancements, even if long-term payments were available.  A landlord may not find it a priority to make the investment if tenants are paying the electric bills.  The savings are dependent on millions of homes and businesses participating in the program.

Smart meters could provide better information that would educate energy consumers about how they are using energy which the report recommends along with more rigid building codes and efficiency requirements for household appliances.  Strong financial incentives for making investments in energy improvements would also help.

McKinsey partner Jon Creyts believes energy efficiency efforts are the “most compelling” way to combat climate change.  Increasing energy efficiency would also enhance the security of the power grid and would even make energy more affordable.
“Energy efficiency is an important and compelling low-cost option, but there are reasons that we need to innovate and continue to develop clean sources of energy,” said Creyts.

McKinsey partially financed the study along with a number of co-sponsors that included the Southern Company, the U.S. Department of Energy, and the U.S. Green Building Council.

McKinsey & Company
55 E. 52nd St., 21st Fl.
New York, NY 10022
http://www.mckinsey.com

Southern Company
30 Ivan Allen Jr. Blvd. NW
Atlanta, GA 30308
http://www.southerncompany.com

U.S. Green Building Council
2101 L Street, NW
Suite 500
Washington, DC 20037
http://www.usgbc.org
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