Energy Efficiency: Building a Clean, Secure Economy

Energy Efficiency

Building a Clean, Secure Economy

With its eminent scholars and world-renowned library and archives, the Hoover Institution seeks to improve the human condition by advancing ideas that promote economic opportunity and prosperity, while securing and safeguarding peace for America and all mankind. The views expressed in its publications are entirely those of the authors and do not necessarily reflect the views of the staff, officers, or Board of Overseers of the Hoover Institution.

www.hoover.org

Hoover Institution Press Publication No. 668

Hoover Institution at Leland Stanford Junior University,

Stanford, California 94305-6003

Copyright © 2016 by the Board of Trustees of the Leland Stanford Junior University

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without written permission of the publisher and copyright holders.

For permission to reuse material from Energy Efficiency: Building a Clean, Secure Economy by James L. Sweeney, ISBN 978-0-8179-1954-2, please access www.copyright.com or contact the Copyright Clearance Center, Inc. (CCC), 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400. CCC is a not-for-profit organization that provides licenses and registration for a variety of uses.

Efforts have been made to locate the original sources, determine the current rights holders, and, if needed, obtain reproduction permissions. On verification of any such claims to rights in the articles reproduced in this book, any required corrections or clarifications will be made in subsequent printings/editions.

Hoover Institution Press assumes no responsibility for the persistence or accuracy of URLs for external or third-party Internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate.

Library of Congress Cataloging-in-Publication Data

Names: Sweeney, James L., author.

Title: Energy efficiency : building a clean, secure economy / James Sweeney.

Other titles: Hoover Institution Press publication ; 668.

Description: Stanford, CA : Hoover Institution Press, 2016. | Series: Hoover Institution Press publication ; no. 668

Identifiers: LCCN 2016021959 | ISBN 9780817919542 (clothbound : alk. paper) | ISBN 9780817919566 (epub) | ISBN 9780817919573 (mobipocket) | ISBN 9780817919580 (pdf)

Subjects: LCSH: Energy consumption—United States. | Energy consumption—Economic aspects—United States. | Energy policy—United States.

Classification: LCC HD9502.U52 S94 2016 | DDC 333.79/130973—dc23

LC record available at https://lccn.loc.gov/2016021959

Contents

List of Figures and Tables

Foreword by George P. Shultz

Acknowledgments

Introduction

Chapter 1. The Policy Context for Energy Efficiency

Energy Efficiency as an Energy Policy Strategy

The Environment

Security

The Economy

Some Terminology: Energy Efficiency, Energy Conservation, Energy Intensity, Energy Productivity

Barriers to Energy Efficiency

Chapter 2. Energy Efficiency Is All Around Us

New or Improved Technologies

Lighting

Refrigeration

Cars and Light Trucks

Aircraft

Computing

Changed Adoption of Energy-Efficient Technologies

Building Insulation

Other Technologies in Buildings

Efficiency in Federal Government Buildings

Changed Company Practices

Reducing Energy Usage as a Profit/Cost Strategy

Data-Driven Industrial Energy Management

Airline Capacity Factor Management

Behavioral Strategies

Commercial Building Retrofits

Contracts/Collaborations to Overcome Split Incentive Problems

Incentives: Internal Carbon Pricing

In Summary

Chapter 3. Energy Efficiency and Aggregate Energy Intensity in the United States—1950 through 2014

The Pre-Energy-Crisis Period: 1950 to 1973

The Energy Crisis: 1973–74

Energy-Consumption Growth Expectations during the Early 1970s

Energy Use after the 1973–74 Crisis

US Domestic Energy Production in the Post-Energy-Crisis Period

Domestic Energy Supply and Energy Demand Together

Chapter 4. Energy-Efficiency Benefits: Environment and Security

Decarbonization of the US Economy

US Net Energy Imports

Chapter 5. Sectoral Disaggregation of Energy Consumption

Industrial, Transportation, Residential, Commercial Sectors

Structural Shifts and the Industrial Sector

Energy Efficiency and the Rebound Effect

Chapter 6. Amplifying Energy Efficiency

Information/Labeling/Nudges

Changed Energy-Efficiency Regulations

Utility Customer-Funded Programs

Financial Incentives

Energy Research and Development

Energy Policy and Advocacy Organizations

Chapter 7. Policy Lessons from the Past Forty Years: What Has Led to Increased Energy Efficiency?

Going Forward: The President’s Goal

Going Forward: Will the President’s Goal Be Met?

Going Forward: Will Energy-Efficiency Progress Stop?

Appendix A: Conversion Efficiency in Electricity Generation

Appendix B: Calculation of Carbon Intensity of Energy Consumption

About the Author

Shultz-Stephenson Task Force on Energy Policy

Index

List of Figures and Tables

Figures

Tables

Foreword

The world, let alone the United States, is in the midst of a revolution in the energy area. Previously low-income countries are experiencing economic development and are in need of energy to power that development. There is increasing awareness of the importance of the atmospheric effects of the use of energy. This is not only a matter of climate; simply ask China about the importance of the air we breathe. Then, of course, energy is tightly linked to our security.

Jim Sweeney has been working on this subject for many years, in particular on what can be done to use energy more efficiently. This book presents solid information on this issue and the result is stunning. The contribution of energy efficiency to date in achieving our goals has been dramatic.

What is the cleanest energy around? The energy that is not used. What is the least expensive energy around? The energy that is not used. What is the most secure energy around? The energy that is not used. So energy efficiency is a triple play.

There are many ways in which the efficient use of energy takes place, including simply as a matter of awareness. I remember a time when we had a crisis in electricity in California. In the building where I worked, we slightly dimmed the lights in the corridors, which moderated their glare and actually made the light more comfortable. We were instructed to turn off lights in offices that were not being used. The result was a 13 percent savings in electricity, even though nothing had been invented to alleviate the problem and nobody had been inconvenienced in any way.

But certainly one of the big motivators of efficiency in the use of energy is the price. One of the really interesting aspects of the charts that Jim Sweeney presents in this book is the inflection point almost across the board in the year 1973.

I remember that year well. I was Secretary of the Treasury, having earlier warned that the main threat of the uneasy situation in the Middle East was that of energy supply. Along comes the Arab Oil Boycott in retribution for action by the United States to resupply Israel at the time of the Yom Kippur War. The result made a deep impression throughout the American body politic. Christmas lights were discouraged and gas stations were closed on weekends, so the reality of energy’s strategic importance was dramatic in a unique and powerful way.

While prices came down somewhat as the boycott ended, they rose again in 1979 at the time of the Iranian revolution, and in the last decade or so, until very recently, they have been extraordinarily high.

The 1973 inflection point is a clear and dramatic piece of evidence of the ability of people to react to high prices and short supplies. But this book provides much more evidence of reactions and measures taken. Widespread use of LED lighting, for example, will have a major impact on the amount of electricity used.

This book presents a sharp picture showing that the contribution of energy efficiency to the US energy scene has been more powerful than any other single development, in fact more powerful than all increases of domestic energy supply taken together. I say this not to downplay the importance of alternative sources of energy but simply to urge continued attention to the importance of using this energy as efficiently as possible.

In my own case, for example, I have solar panels on the roof of my energy-efficient house at Stanford and I drive a very energy-efficient electric car. I have long since paid for my panels by savings on my electricity bill. The electricity used by my car is far less than what is produced by the solar panels, so I am, in effect, driving on sunshine. What’s not to like?

I have long advocated a revenue-neutral carbon tax, and the picture presented in this book is evidence that people respond to prices. So let’s keep our eye on what has worked and what will continue to work. This book by Jim Sweeney is full of ideas and evidence that can help make the future better than the past.

George P. Shultz

The Thomas W. and Susan B. Ford Distinguished Fellow

Hoover Institution, Stanford University

Stanford, California

Acknowledgments

The Precourt Energy Efficiency Center (PEEC) was founded in October 2006 at Stanford University by a generous gift from Stanford alumnus Jay Precourt. As a Stanford University research institute, PEEC draws upon intellectual resources from the entire university in order to improve opportunities for and implementation of energy-efficient technologies, systems, and practices, with an emphasis on economically attractive deployment. Financial, moral, organizational, and intellectual support by Jay Precourt continues to make PEEC viable. PEEC is part of another Stanford organization, also funded initially by Jay Precourt, the Precourt Institute for Energy.

If the Precourt Energy Efficiency Center didn’t exist, this book would not, and probably could not, have been written.

The Hoover Institution’s Shultz-Stephenson Task Force on Energy Policy addresses energy policy in the United States and its effects on our domestic and international political priorities, particularly our national security. It was Secretary George Shultz, the leader of this task force, who strongly encouraged me to write a book and who frequently kept reminding me to continue the progress. George Shultz has been my inspiration for many decades.

Funding from the Exxon Mobil Corporation, through the Stanford Institute for Economic Policy Research, provided partial financial support.

Finally, thanks to the Energy Information Administration (EIA) of the US Department of Energy. The rich array of quality data, available on the EIA website, has been essential to quantifications in this book.

Many people provided invaluable assistance as this book was under development. My wife, Susan Sweeney, has kept encouraging me, commented on previous drafts, and put up with me during the writing process. Many other people have provided helpful comments, ideas, critiques, intellectual assistance, and language for the previous drafts. Thank you Christina Angelides, Carrie Armel, Jeff Bingaman, Ralph Cavanagh, Ross Chanin, John Conomos, Danny Cullenward, David Fedor, Wendy Fok, Mark Golden, David Goldstein, Kit Kennedy, Jonathan Koomey, Scott Litzelman, Tony Malkin, Robert Marks, Jay Precourt, Gabriel Rosenthal, Ansuman Sahoo, Andreas Schäfer, George Shultz, Michael Sivak, Daniel Sperling, Jerry Sweeney, Margaret Taylor, Roland Wang, John Weyant. And I would especially like to thank George Sweeney and Dian Grueneich for their extensive very valuable comments on previous drafts.

Introduction

In 1973, the energy world was fundamentally altered by the oil embargo and tripling of world oil prices, with high oil prices remaining for over ten years. The United States turned attention to reducing oil imports, driven by national security and economic concerns. More recently, with recognition of global climate change and carbon dioxide emissions from fossil fuel use, attention has turned toward reducing greenhouse gas emissions, driven by environmental concerns. Energy policy discussions since 1973 have thus centered on energy impacts to three complex and crucial systems: the economy, the environment, and security, the energy policy triangle.

Energy efficiency—defined here as economically efficient reductions in energy use—reduces energy intensity of the economy—defined as the energy consumption per constant dollar of gross domestic product (GDP). This in turn benefits national security, the environment, and the economy. This energy policy context is the subject of Chapter 1 of this book.

Since the oil embargo, individuals,