McKinsey must-read: U.S. can meet entire 2020 emissions target with efficiency and cogeneration while lowering the nation’s energy bill $700 billion! [Says Joe Romm]

July 29, 2009
The McKinsey executive summary is appended. For the full report, go to:

http://www.mckinsey.com/clientservice/electricpowernaturalgas/US_energy_efficiency/

More than perhaps any other company, McKinsey has documented how an aggressive energy efficiency strategy sharply lowers the cost of climate action (see “McKinsey 2008 Research in Review: Stabilizing at 450 ppm has a net cost near zero”).

Today they released their most comprehensive analysis to date of this country’s energy efficiency opportunity, “Unlocking energy efficiency in the U.S. economy.”  Bottom line:  If this country get serious about energy efficiency — for instance, by passing a climate and clean energy bill like Waxman-Markey — then we can sharply reduce existing emissions at a large net savings to the public and U.S. businesses.  McKinsey has a new cost-curve just of efficiency measures (click to enlarge):

The width of each column on the chart represents the amount of efficiency potential (in trillion BTUs) found in that group of measures….  The height of each bar corresponds to the average annualized cost (in dollars per million BTU of potential).

For those expecting to seeing efficiency below the line (i.e. negative cost), McKinsey has added a dashed line that represents the average cost of a new power plant.  McKinsey said at the press conference today that all the measures above have a positive net present value.

McKinsey explains that these measures, if fully enacted over the next decade, would save a remarkable 1.2 billion tons of CO2 equivalent, which is 17% of U.S. CO2e emissions in 2005.  In other words, the entire 2020 target in the Waxman-Markey climate bill could be met with energy efficiency at a net savings to U.S. consumers and businesses of $700 billion.

And what is even more stunning about this analysis is that it didn’t even look at the transportation sector, where we know huge savings opportunities are possible (see “U.S. can cut half its transportation emissions by 2050“).

McKinsey explains “The central conclusion of our work”:

Energy efficiency offers a vast, low-cost energy resource for the U.S. economy – but only if the nation can craft a comprehensive and innovative approach to unlock it. Significant and persistent barriers will need to be addressed at multiple levels to stimulate demand for energy efficiency and manage its delivery across more than 100 million buildings and literally billions of devices. If executed at scale, a holistic approach would yield gross energy savings worth more than $1.2 trillion, well above the $520 billion needed through 2020 for upfront investment in efficiency measures (not including program costs). Such a program is estimated to reduce end-use energy consumption in 2020 by 9.1 quadrillion BTUs, roughly 23 percent of projected demand, potentially abating up to 1.1 gigatons of greenhouse gases annually.

The United States is only beginning to tap the efficiency opportunity.  McKinsey has a separate, much shorter report released this month on the stimulus, “Energy: Investing in efficiency,” which finds, “nearly $100 billion in new spending on energy-related projects will have a huge impact.”

Whereas McKinsey thinks we could save 9.1 quads after a decade of serious investment, an analysis by the American Council for an Energy-Efficient Economy (ACEEE) says the Waxman-Markey bill will “only” achieve that some time in the mid-2020s (see “The triumph of energy efficiency: Waxman-Markey could save $3,900 per household and create 650,000 jobs by 2030“).

The new McKinsey report has an excellent discussion of the barriers to efficiency and how to address them, which they summarize in this figure:

The good news is that the climate and clean energy bill — together with the stimulus and Obama’s budgets — would address many of those barriers with strong building and appliance efficiency standards, a large increase in R&D for efficiency technologies, major investments in energy efficiency by states and utilities, and, of course, a price on carbon.  I would add that the key to breaking down the remaining barriers is to two terms of an Obama administration led by efficiency advocates like energy secretary Steven Chu and Federal Energy Regulatory Commission chair, Jon Wellinghoff — see FERC chair on new nuclear and coal plants: “We may not need any, ever.”

I am especially pleased that the report analyzed combined heat and power since it is a core, but neglected climate solution.  I will discuss what they say about CHP — and what needs to be done to break down the barriers to more CHP — in a later post.

Kudos to McKinsey for another first-rate piece of work.

The McKinsey report is appended

Michael Hogan says:
July 29, 2009 at 2:09 pm
Another key aspect of delivering these benefits, which is not mentioned in the post and may or may not appear in the McKinsey work but which we and our affiliates are aggressively promoting, is the use of carbon revenues as a funding source for efficiency retrofits of existing building stock. The real value of a carbon price is not in the price signal per se (unless the price signal were to be many times higher than is anticipated in any realistic projection), but rather it is in what you do with the revenues it raises. This is being demonstrated now in the states participating in the Regional Greenhouse Gas Initiative in the Northeast and MidAtlantic. These ten states have voluntarily committed to investing over 70% of revenues directly into high-impact GHG reducing measures, primarily programs to retrofit existing building stock with aggressive efficiency measures. Studies have shown that for a given carbon price, sustained reductions of consumption are 7-8 times greater when carbon revenues are deployed in this fashion than when carbon revenues are treated as just another stream of tax revenue. There is no better way to permanently reduce the impact on consumers of a carbon price than to insulate them, literally and figuratively, from the future impacts of volatile and rising energy prices.

ecostew says:
July 29, 2009 at 2:45 pm
CONTACT:
Brendan Gilfillan
gilfillan.brendan@epa.gov
202-564-2081
202-564-4355

FOR IMMEDIATE RELEASE
July 29, 2009

EPA Statement on McKinsey & Company’s New Report, “Unlocking Energy Efficiency in the U.S. Economy”

WASHINGTON – McKinsey & Company has released a new report today outlining opportunities for consumers, businesses and other institutions to save nearly $1.3 trillion in energy costs by 2020. According to the report, America could reduce its non-transportation energy usage by 23 percent by 2020 by investing in energy efficiencies.

EPA Administrator Lisa P. Jackson released the following statement in reaction to the report:

“The energy that most effectively cuts costs, protects us from climate change, and reduces our dependence of foreign oil is the energy that’s never used in the first place. According to McKinsey’s report, energy efficiency improvements alone can reduce consumption more than 20 percent by 2020 and prevent up to 1.1 gigatons of greenhouse gases annually, helping America lead the way in averting the worst effects of climate change. The McKinsey report reveals new possibilities for energy efficiency, and will be instrumental in engaging consumers, businesses and everyone else to cut energy consumption, reduce harmful emissions, and save money on electricity. EPA will continue pioneering energy efficiency through programs like Energy Star, partnership with the Department of Energy in the National Action Plan for Energy Efficiency, and engagement in state and local climate and energy programs.”