Let’s Tap America’s Energy Advantage

By Deborah Wince-Smith

Deborah Wince-Smith is the President & CEO of the Council on Competitiveness and President of the Global Federation of Competitiveness Councils, with over 20 years of experience as a senior U.S. government official – as the first Senate-confirmed Assistant Secretary for Technology Policy in the Department of Commerce and Assistant Director for International Affairs in the Reagan White House.

What if I told you there is a vast energy resource available to us that is abundant, inexpensive, clean and cuts costs for business and industry? Sounds too good to be true, right?

In fact, this resource is the energy that we use—or more accurately, don’t use—each day. While we have been trying to find more energy to meet rapidly growing demand around the world, a huge untapped energy resource lies in maximizing the productive use of our current resources.

Getting the Most Out of Energy

Another way to think about it is being more efficient: getting the most work out of the energy we use—be it to run machinery to produce goods and services; propel our vehicles; heat, cool, and light our homes and buildings; and even to sustain human labor with food that takes energy to grow, process, and reach our tables.

Because energy is the lifeblood of economic activity, energy productivity is a core driver of economic competitiveness. From fueling factories to powering computers, energy is a basic input to production, and a critical factor in the final cost of goods and services. Companies and countries that make the most efficient and effective use of the inputs to production tend to be more competitive.

A recent report by the Natural Resources Defense Council found that the United States has more than doubled its economic productivity from oil, natural gas, and electricity over the past 40 years, making energy efficiency the largest contributor to meeting America’s energy needs.

Leadership to Double Energy Productivity

As part of his administration’s blueprint for a secure energy future, President Obama has announced the goal of doubling U.S. energy productivity from 2010 levels by the year 2030. In an effort called for by Secretary of Energy Ernest Moniz, the Council on Competitiveness, the U.S. Department of Energy and the Alliance to Save Energy have joined forces in Accelerate Energy Productivity 2030 as a catalyzing force to meet this goal. Accelerate Energy Productivity 2030 is gathering together national leaders and experts across the country to create a roadmap for doubling U.S. energy productivity, and spurring action at all levels of government and in the private sector. The second Accelerate Energy Productivity 2030 leadership dialogue will convene on April 13, 2015 at Alstom in Redmond, Washington – partnering with Pacific Northwest National Laboratory – where leaders and experts will examine effective ways to increase energy productivity in “smart” power systems, and the generation and distribution of electricity. This dialogue follows a launch conversation at NC State University in Raleigh, NC that focused on emerging opportunities in the transportation and the built environment, and precedes a concluding dialogue at 3M focusing on industrial processes.

These dialogues will be critical in shaping a public-private response to the energy productivity opportunity. As McKinsey estimates, investing $170 billion annually between 2010-2020 to increase energy productivity would yield an average internal rate of return of 17%. These investments—equivalent to 1.6% of global fixed investment and about 0.4% of global GDP—could cut the projected growth of energy demand from 2.2% annually to 0.7%, generating savings growing to $900 billion in 2020, and avoiding investment in energy infrastructure that would otherwise be needed to keep pace with demand.

From Light Bulbs to Electrical Grids: How Big is the Opportunity?

Opportunities for greater energy efficiency are all around us—anything electrified, motorized, heated, or cooled.

  • U.S. manufacturing has an annual energy bill of about $200 billion and uses one-third of primary energy consumed in the United States. There are opportunities to improve energy efficiency in specific manufacturing processes by 25% or more. Smart manufacturing and sensors that optimize production, better chemical processing, and combined heat and power systems could reduce energy consumption, emissions, and improve manufacturing competitiveness. For example, every year, more energy is lost as wasted heat in power generation in the United States than total energy use in Japan. Getting electricity and heat from power plants and boilers is approximately 50% efficient, but combined heat and power is 75% efficient because it captures and uses energy that would normally be lost.
  • Homes and Buildings. Residential and commercial buildings consume more than 40% of U.S. total energy and 73% of electrical energy, racking up an annual national buildings energy bill of more than $430 billion. This energy bill can be reduced by 20%-50% through a variety of existing and emerging energy efficiency technologies and techniques—solid state lighting; more efficient heating, ventilation, and air conditioning systems; better windows; more efficient appliances; and advanced building controls.

For example, ENERGY STAR certified light bulbs use 70%-90% less energy than traditional incandescent bulbs, and can save $30-$80 in electricity costs over their lifetime. If every American home replaced just one light bulb with an ENERGY STAR bulb, we would save enough energy to light two million homes for a year, save $460 million in annual energy costs, and prevent six billion pounds of greenhouse gas emissions per year, equivalent to emissions from 550,000 cars.

When buildings and their systems are designed for optimal efficiency, energy savings of 60%-80% are possible without sacrificing comfort or cost effectiveness. Cutting U.S. building energy use by 50% would save consumers and business roughly $200 billion in annual energy costs, and about one billion metric tons of CO2.

  • Transportation accounts for two-thirds of U.S. petroleum use, and on-road vehicles account for 80% of it. The average U.S. household spends about one-fifth of its budget on transportation, making it the second-most expensive budget line-item after housing. Consumers have been whipsawed by volatile oil prices; over the past ten years, U.S. regular gas prices have fluctuated from below $1.50 to more than $4, squeezing annual household budgets by as much as $1,500 per average passenger car.

While vehicle fuel economy is increasing, reductions in vehicle weight and size—such as more use of light-weight materials and vehicle redesign—could further increase fuel efficiency. For example, reducing vehicle weight 10% yields a 6%-8% improvement in fuel economy for an internal combustion vehicle. Even advanced vehicle lubricants could increase vehicle fuel economy by 2%-6% in the 240 million light-duty vehicles and two million heavy-duty vehicles on U.S. roads today. A 4% fuel economy improvement could save about 8 billion gallons of fuel a year.

Reducing fuel consumption by 50% in light duty vehicles would eliminate the use of more than two million barrels of oil a day, and 6 billion metric tons of CO2 emissions—slightly less than total U.S. emissions in 2010. The average consumer spends about $2,700 a year on gas and oil for their vehicle. If a consumer purchases a vehicle that gets 30 miles to the gallon instead of 20 miles, they will spend about half as much on fuel, saving about $800 per year.

  • Electric Grid. Our digital economy, national security, and daily lives are highly and ever more dependent on electricity. Across the country, we can turn on the lights, turn up the heat, and crank up the factory thanks to an engineering wonder—the U.S. electric grid—a vast and complex network: 190,000 miles of high voltage transmission lines, 7,000 power plants, and 14,000 transmission substations connected to 140 million customers.

But this system is getting old, not very efficient, and in bad need of investment to keep pace with our needs and modern economy. Parts of the network are a century old, 70% of the grid’s transmission lines and transformers are more than 25 years old, and the average age of power plants is more than 30 years old. During 2010, the U.S. electricity sector produced 4,126 million MWh of electricity, 70% of the output coming from steam-cycle coal, natural gas, and nuclear power. But more than half of the energy stored in the fuels was lost in the fuel-to-electricity conversion process. Reducing these losses, even by small percentages, would have significant impact on U.S. energy productivity.

We need a 21st century grid that is smart, sustainable, safe, reliable, efficient, affordable, and secure. A modern electric grid that can help double U.S. energy productivity by 2030 will require deployment of a variety of technologies such as: integrating advanced communications and information technologies, central and distributed power supplies that incorporate renewable energy, micro-grids, energy storage, and real-time modeling to analyze and power flow control to optimize grid operations.

Since the cost to generate electricity varies minute-by-minute, on the customer side of the meter, a smart grid can provide energy price signals based on supply and demand, helping consumers consider prices, make informed decisions, better manage their electricity use and the size of their electricity bill.

McKinsey and Company estimated that a smart grid could save more than $130 billion annually through reduced energy consumption, reduced need to build new capacity, and increased grid efficiency and reliability.

The benefits add up. Doubling energy productivity would deliver greater energy reliability, security, greater affordability, and improved economic competitiveness. Energy imports could be cut, greenhouse gas emissions reduced, and we would be less vulnerable to global energy price spikes. A 2009 McKinsey study showed that the U.S. economy could reduce annual non-transportation energy consumption by about 23% by 2020, saving more than $1 trillion in wasted energy for an upfront investment of about $500 billion.

Setting the Global Gold Standard for Energy Efficiency

It’s time for America to lead the way. The United States and the Accelerate Energy Productivity 2030 leadership model can set the global gold standard for energy productivity. With global energy demand growing rapidly, especially in developing countries that need energy to advance their economies, and in growing population centers around the world, a quest for energy productivity is a high priority. In May, the Council will join with Secretary Moniz and other global energy leaders at the 6th Clean Energy Ministerial in Mexico to highlight and share best practices around the public-private efforts in the United States to address long-term energy productivity challenges.

In an increasingly high-tech, global landscape, where the nexus of energy and manufacturing with other resources like water and agricultural commodities becomes ever more intertwined, and burgeoning economies in developing countries demand more and more energy, the opportunity to drive sustainable growth through energy productivity is too large to leave on the table.

As former U.S. Secretary of Energy Steven Chu famously said “energy efficiency isn’t just low hanging fruit; its fruit laying on the ground.” Accelerate Energy Productivity 2030 will lay the foundation—not just for the United States but for the world—for an energy productive future.

 

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