Kate Galbraith

The biggest opportunity to improve US energy situation is a major investment programme to make homes and businesses more efficient, according to a study by the consulting firm McKinsey. An investment of $520 billion in improvements like sealing ducts and replacing inefficient appliances could produce $1.2 trillion in savings on energy bills by 2020, the study found.

The report said such a programme, if carried out over the next decade, could cut the country?s projected energy use in 2020 by about 23%, a savings that would be ?greater than the total of energy consumption of Canada,? Ken Ostrowski, a senior partner in McKinsey?s Atlanta office, said at a forum in Washington. It would also more than offset the growth in energy use that would be expected otherwise. ?The scale is vast if we can put together the means to pursue it,? Ostrowski said.

Homes account for about 35% of the potential efficiency gains, according to McKinsey, while the industrial sector accounts for 40% and the commercial sector 25%. The report included only efficiency improvements whose long-term savings would outweigh the initial costs. It did not consider the potential environmental benefits of cutting energy use.

The report acknowledged substantial barriers to achieving the savings, foremost among them the initial costs. The $52-billion annual investment envisioned by McKinsey is four or five times more than the nation currently spends on energy efficiency, and would have to be maintained over a decade. The economic stimulus package passed in February barely makes a dent; by McKinsey?s estimate, it contains $10 billion to $15 billion in spending on energy efficiency.

Some home or business owners may not have the money to finance efficiency improvements, even if they would pay off in the long run. Other barriers include inertia (a homeowner may simply not feel like replacing an old air-conditioner); and poorly aligned incentives (a landlord who does not pay the electric bill has no economic reason to replace the old air-conditioner).

The potential gains are also spread across millions of homes and businesses, so getting widespread participation would be a challenge.

?No question, the potential is there theoretically,? said David G Victor, an energy expert at the University of California, San Diego, noting that he had not yet seen the report?s details. ?It?s really, really difficult to achieve that full potential in the real world.?

To achieve $1 trillion in savings, Victor added, would require ?a lot of people and a lot of complex organisations to change their behaviour.?

The McKinsey report?s recommendations include providing education and better information about the potential savings from energy efficiency, tighter building codes, stricter efficiency requirements for appliances and greater financial incentives for making efficiency improvements.

The Obama administration has been pursuing many of these avenues?for example, some energy-efficiency funding in the stimulus bill requires states to promise to strengthen their building codes. President Obama has also made stricter appliance standards a priority.

Jon Creyts, a McKinsey partner in Chicago, said that energy efficiency presented the ?most compelling? way to combat the climate change challenge, as well as to achieve energy security and affordability. It is not, however, a panacea, he said.

?Energy efficiency is an important and compelling low-cost option,? Creyts said, ?but there are reasons that we need to innovate and continue to develop clean sources of energy.?