McKinsey: Energy efficiency could save $700 billion

Energy efficiency--it's not just the low-hanging fruit, it's the fruit that's lying on the ground, Energy Secretary Steven Chu recently quipped. Now McKinsey has put a number on the potential savings: $1.2 trillion on an investment of $520 billion over 10 years.

The consulting firm on Wednesday released a follow-up report to its often-cited economic analysis for reducing greenhouse gas emissions.

Cost analysis: measures below the baseline on the left will have the quickest return on up-front investment.

(Credit: McKinsey)

While there are countless proposals to generate energy in cleaner ways, the McKinsey study concluded that using existing products and practices, such as weatherizing homes or installing combined heat and power systems, could yield vast savings by 2020.

However, there are number of barriers, including the up-front cost, a fragmented array of products covering hundreds of thousands of buildings and billions of devices, and a lack of awareness that efficiency exists as a "fuel source" itself, McKinsey consultants said during a press conference Wednesday.

"If we do nothing, we will waste $1.2 trillion of energy," McKinsey partner Ken Ostrowski said. "Over a decade, (the up-front investment) would be $50 billion a year, which is about five times what we invest today. That investment pays back--it's one of the few that generate environmental benefits and economic cost returns."

The study examined the potential for efficiency in stationary sources, so it does not include transportation. The demand for power could be decreased 23 percent by 2020, which is equivalent to the nontransportation energy consumption of Canada or removing the entire U.S. passenger fleet from the road.

Individual homes and businesses could save about 28 percent off their current energy spending, while the industrial sector could save 20 percent. Within people's homes, electronic devices are quickly becoming a larger portion of monthly electric bills.

When surveyed, the average American estimates that "plug loads" represent 13 percent of energy consumption, but the number is more like 35 percent and growing, Ostrowski said.

Standby power alone, sometimes referred to a home's parasitic or vampire load, is 6 percent to 8 percent of the total. Putting in place efficiency standards to cut standby power could result in energy savings equivalent to the annual electricity consumption of the Netherlands, Ostrowski said.

"These things are significant but fragmented. The awareness levels are not there today, and that's one of the barriers we have to overcome," he said.

[MD_Willington]

It seems that newer devices do not exhibit as much or no phantom load, sure there are some devices out there that are still phantom loads but they are going away...

[iptofar]

Did their estimates include cap and trade costs?

It's not unusual for consulting companies to be off on cost estimates by a factor of 2 or more.

[mlamonica]

No, the numbers assume that there is no price for carbon.

They did do some analysis on the impact from changing energy prices and different projected costs for carbon and said that the savings were still significant. See page vi on the report: http://www.mckinsey.com/clientservice/electricpowernaturalgas/downloads/US_energy_efficiency_full_report.pdf

[AndyatNewLeaf]

There is indeed a huge opportunity here, especially in retrofitting millions of American homes. But it's one that will require knowledgeable teams providing reliable products and services in an affordable manner. Organizations like ACEEE, New Leaf America, and Efficiency First are on the forefront of this market, but there is a real need to scale these efforts if we are to make the impact and reap the rewards of the Energy Efficiency opportunity. Another of McKinsey's studies shows that the investment return on efficiency is a staggering 17%. http://ow.ly/iwsV Certainly an investment like this with environmental, job creation, and energy savings benefits is well worth it!

[thansenpr]

$1.2 trillion on an investment of $520 Billion is a pretty good investment if my math is correct! Now we need the D.O.E. to get companies moving to make the transition to more energy efficient products and services.
The great thing about saving energy is there are things every person can do. As individuals we can unplug the vampire products or appliances in our homes. Businesses could take advantage of new technology like recycling "waste heat" for energy like ElectraTherm http://tinyurl.com/ktxlq5. Business could also install LED lighting from companies like Energy Smart Industry http://www.energysmartindustry.com/.
Anyway you look at it an investment now could lead to serious ROI in the future.

[William Crow]

My wife hates the color of light that is emitted by folded fluorescent bulbs. I find it ugly, too. But in fixtures that have multiple bulbs, I mix a least one in. She can't tell the difference. In doing so money is saved.

[zeekaustin]

You can get bulbs with great light color output. Check the K rating (color temperature) on the bulbs you buy (if the package doesn't say it, put it down and grab a different brand that does). The lower the temperature, the closer to true white the light is. Most of the "yellow" ones are in the 6500K range. You want to find something in the 2000-3000 range.

[sslPro]

Most decision makers will come to understand Leds are the answer Why would people use technology
from a century gone past is beyond me. The rationale is clear Ssl and its attendant advantages will make the use of incandescents obsolete. WHY build nuclear reactors -Reduce our averice/consumption
If everyone self restricted we would be in better shape - example my family's electric bill has never
exceeded $50 for the last 3 years (solid state lighting since 06) If it needs to be mandated so be it-
Nanny state /BAD but Building codes make sense to me and most others/////// Logical Energy use///
make it happen people!!

[snesich]

Finally people are beginning to understand the immense value of simply using our energy more efficiently. For too long, too many people misunderstood this.

Ronald Reagan spoke for many of the misinformed and ignorant with this typically obtuse comment. Asked about "efficient use of our energy" he stated his opposition, saying, "That means being cold in the wintertime and hot in the summertime."

I'm happy to see a more informed and realistic dialogue beginning to take place, almost three decades later.

[speakforthose]

I agree with snesich -- for a long time, people have not understood the massive potential of energy efficiency. Combined heat & power (along with its sister technology, waste heat recovery) is particularly useful. This McKinzie study is the latest in a long line of studies (from Oak Ridge and elsewhere) confirming that there's pretty much no better way to reduce CO2 emissions than CHP, and it actually SAVES money -- yet the public doesn't know about it. We should be doing much more to lower the barriers on this front.

Full disclosure: I'm associated with Recycled Energy Development, a company that does this kind of work and whose principals are the national leaders on this front. So I'm not entirely unbiased. But there reason I'm involved in the first place is the massive potential here.