The problem(s) with efficiency

McKinsey has another report out touting the big savings that can be made from energy efficiency. You can read summaries in several places (nytimes.com has even provided a little summary of successful efficiency investments case studies contained within the report).

As well as identifying that $520bn in efficiency investments could yield $1,200bn in cost savings over that period, McKinsey have a few suggestions. They revolve around recognising energy efficiency, identifying the best approaches, funding more research and so forth. But the most challenging one is this:

3. Identify methods to provide the significant upfront funding required by any plan to capture efficiency

McKinsey have a few suggestions for how this could be achieved: loan guarantees; enhanced performance contracting and, most striking of all, levying a 0.0059 per kW surcharge on electricity bills, which they say would add 8 per cent to electricity bills now, in return for an eventual 24 per cent saving. Well, try getting that

Interestingly, one of the most talked-about efficiency measures, transparency of consumtpion information (eg, smart meters) doesn’t compare particularly well to other measures. Almost all are fairly poor in terms experience, but financial incentives and energy efficiency resource standards rate well in terms of both speed to implement and complexity (on cost, financial incentives are somewhat higher). :

Efficiencies in appliances are one of the cheapest and best proven methods, while efficiencies in “non-low-income” homes is both relatively expensive and unproven. Energy savings in existing homes highlights the problems with incentives: Measures in poorer households are both cheaper and better proven, although McKinsey says the potential savings from non-low-income households is about double that available from existing low income households.

So, efficiency has great returns, which we knew, but surprisingly little is known about how different effiency measures compare, and the question of incentives can probably only be solved with some concerted government spending.

Meanwhile, Matthew E. Kahn has a question for McKinsey:

Are they willing to put their money where their mouth is? Will they offer my household the following contract? “Professor Kahn, your current monthly electricity bill is $100 a month. You pay us (McKinsey) $85 a month and we will pay all of your electricity bills for the next 5 years but you must let us enter your home and install energy efficiency upgrades and improvements”.

Related links:

Summoning the motivation to invest in efficient buildings (FT Energy Source, 29/04/09
Good, but not good enough
(FT Energy Source28/04/09)

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